<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-6959
MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in its charter)
TEXAS 74-1032912
(State of Incorporation) (I.R.S. Employer Identification No.)
2001 TIMBERLOCH PLACE
THE WOODLANDS, TEXAS 77380
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (713) 377-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Class A Common Stock, $.10 Par Value New York and Pacific
Class B Common Stock, $.10 Par Value New York and Pacific
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of
the registrant at February 28, 1999 was approximately $89,425,175.
Shares of common stock outstanding at February 28, 1999:
Class A - 22,321,640
Class B - 26,795,627
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this report: Annual Report to Stockholders for
the fiscal year ended January 31, 1999 - Parts I and II. Definitive
Proxy Statement to be filed within 120 days after January 31, 1999 - Part III.
===============================================================================
<PAGE> 2
PART I
ITEM 1 - BUSINESS
Except for discussions of competition and insurance, information required
by this item is incorporated by reference from portions of Mitchell Energy &
Development Corp.'s Annual Report to Stockholders for the fiscal year ended
January 31, 1999 furnished to the Commission pursuant to Rule 14a-3(b) under
the Securities Exchange Act of 1934 (Annual Report to Stockholders).
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------- -----------
<S> <C>
Inside
The Company............................................................................... Front Cover
Exploration and Production................................................................ 4 - 11
Gas Services.............................................................................. 12 - 16
Notes to Consolidated Financial Statements
Note 10: Segment Information........................................................... 40 - 42
</TABLE>
Competition
The Registrant is a holding company which conducts all of its operations
through its subsidiaries, collectively referred to as "the Company." The
Company is one of the country's largest independent producers of natural gas
and natural gas liquids.
Its operations include the exploration for and production of natural gas
and crude oil, production of natural gas liquids (NGLs) and the operation of
gas gathering systems. Within these businesses, the Company competes with many
companies that have substantially larger financial and other resources or whose
operations are more fully integrated than the Company's. The oil and gas
industry is highly competitive. There is competition within the industry and
also with other industries in supplying the fuel and energy needs of commerce,
industry and individuals.
The Company owns or has interests in natural gas processing plants located
in Texas and Oklahoma, and it ranked 15th in daily domestic NGL production in
calendar 1997. The Company has fractionating equipment at several of its
processing plants and also owns a 38.75% interest in a large fractionating
plant near Mont Belvieu on the upper Texas Gulf Coast. After being fractionated
into ethane, propane, butanes and natural gasoline, the NGLs are used by others
in the production of plastics, paints, solvents, synthetic rubber, gasoline and
a wide variety of other products. Propane also is widely used as a fuel in
rural areas for cooking, home heating and crop drying. The Company participates
in the petrochemical business through its one-third interest in a plant at Mont
Belvieu, Texas that produces methyl tertiary butyl ether (MTBE), an oxygenate
used in the production of environmentally cleaner gasoline. This plant has a
daily capacity of approximately 17,000 barrels.
The Company owns or operates approximately 8,800 miles of natural gas
gathering systems substantially all of which are located in Texas. These
systems operate in highly competitive local markets and intersect with numerous
pipeline systems enabling the Company to buy, sell, transport and exchange gas
with other pipeline operators.
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<PAGE> 3
The Company's operations have been and in the future may be affected in
varying degree by general economic conditions and by laws and regulations,
including restrictions on production, price controls, tax increases and
environmental regulations. The Company's energy price realizations are often
volatile and generally are affected both by domestic and world supply and
demand conditions.
Insurance
The Company's business is subject to all the operating risks normally
associated with exploration and production of natural gas and oil; extraction
of NGLs from natural gas streams and natural gas gathering and transportation.
Such risks include well blow-out, fire and explosion, pollution, flood and
other events which could result in the damage to or destruction of assets owned
by the Company or third parties and the injury of employees and other persons.
The Company, following practices customary within the industries in which it
operates, purchases insurance coverage against most, but not all, of these
operating risks as protection against financial loss and believes it is
adequately insured against public liability claims and physical damage losses.
Losses and liabilities, to the extent not covered by insurance, could reduce
the Company's cash flows and increase its costs.
-2-
<PAGE> 4
ITEM 2 - PROPERTIES
Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- --------
<S> <C>
Exploration and Production................................................................... 4 - 11
Gas Services................................................................................. 12 - 16
Operating Statistics......................................................................... 21
Unaudited Supplemental Oil and Gas Information............................................... 46 - 49
</TABLE>
OTHER OIL AND GAS RELATED DATA
The following information is required by Sections 3, 5 and 6 of the
Securities Act Industry Guide 2, Disclosure of Oil and Gas Operations.
AVERAGE PRODUCTION COST IN EQUIVALENT UNITS
<TABLE>
<CAPTION>
Year Ended January 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Combined natural gas, crude oil and condensate
production (thousand cubic feet per day)*............................ 298,000 285,000 261,000
Average production cost per
equivalent thousand cubic feet....................................... $.68 $.68 $.69
</TABLE>
- --------------------------------------------------
* Expressed in equivalent units of production with barrels of oil converted
to cubic feet of gas on a 6-to-1 basis.
UNDEVELOPED ACREAGE AT JANUARY 31, 1999
<TABLE>
<CAPTION>
Earliest Material
Expiration by State (a) Areas of Concentration
----------------------- -------------------------
Gross Net Net Calendar %
Location Acres Acres Acres Year County or Area (b)
- -------- -------- -------- ------- ------------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Texas......................... 366,000 268,600 91,000 1999 North Texas 69
South Dakota.................. 46,100 13,400 13,400 1999 Butte 100
Louisiana..................... 31,700 28,200 18,600 2002 Jefferson Davis 81
Mississippi................... 28,800 11,800 4,300 2000 Yazoo 59
Alabama....................... 25,100 17,200 12,300 1999 Butler, Conecuh 85
Ohio.......................... 23,600 23,500 6,400 2000 Lawrence 88
Utah.......................... 22,900 11,900 2,700 1999 Uintah 100
New Mexico.................... 14,900 13,400 2,400 1999 Lea 93
Others (c).................... 28,700 18,900
--------- -------
Total undeveloped acreage..... 587,800 406,900
Producing acreage............. 779,400 579,500
--------- -------
Total acreage................. 1,367,200 986,400
========= =======
</TABLE>
- ------------------
(a) Expiring leases may be renewed if conditions warrant.
(b) Percentage of the state's net acres located in the indicated areas of
concentration.
(c) Includes Colorado, Michigan and Oklahoma.
-3-
<PAGE> 5
DRILLING ACTIVITY (a)
For the year ended January 31
<TABLE>
<CAPTION>
Exploratory Development Total
------------------ ------------------ ------------------
Well Completions Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
- ------------------------- ----- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Wells - 1999
North Texas..................... 75 4 2 - 8 57 4 12 59 4
East Texas...................... 28 - - 1 - 27 - - 27 1
Gulf Coast...................... 21 - - 2 1 16 2 1 16 4
West Texas...................... 32 4 - 5 23 - - 27 - 5
Other........................... 9 1 - 4 - 1 3 1 1 7
---- -- -- --- --- ---- -- --- ---- ---
Total (b)..................... 165 9 2 12 32 101 9 41 103 21
==== == == === === ==== == === ==== ===
Net Wells
1999............................ 120.5 4.2 2.0 5.5 12.3 90.3 6.2 16.5 92.3 11.7
1998............................ 162.1 15.0 5.5 10.2 23.2 106.7 1.5 38.2 112.2 11.7
1997............................ 119.1 6.1 1.0 12.1 22.0 74.2 3.7 28.1 75.2 15.8
</TABLE>
- ---------------------
(a) Excludes service wells.
(b) An additional 15 wells (12.0 net wells) were in the process of being
drilled or completed at January 31, 1999.
ITEM 3 - LEGAL PROCEEDINGS
See Note 7 of Notes to Consolidated Financial Statements included in the
Company's Annual Report to Stockholders.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1999, no matter was submitted to a
vote of security holders, either through solicitation of proxies or otherwise.
-4-
<PAGE> 6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the executive officers of the Company as of
March 1, 1999.
<TABLE>
<CAPTION>
Officer
Name Position Age Since
---- -------- --- -------
<S> <C> <C> <C>
George P. Mitchell Chairman and Chief Executive Officer 79 1946
Bernard F. Clark Vice Chairman 77 1956
W. D. Stevens President and Chief Operating Officer 64 1994
Philip S. Smith Senior Vice President and Chief Financial Officer 62 1980
Allen J. Tarbutton, Jr. Senior Vice President, Gas Services 60 1974
Thomas P. Battle Senior Vice President, Legal and Governmental 56 1982
Affairs, General Counsel and Secretary
</TABLE>
The year in the "Officer Since" column is the beginning of the period during
which the indicated individual has continuously served as an officer of the
Company (although not necessarily as an "executive officer").
All of the executive officers were elected at a Board of Directors
meeting held on June 24, 1998 for a term of one year, or until their respective
successors are qualified.
There are no significant family relationships among the officers of the
Company, either by blood, marriage or adoption.
-5-
<PAGE> 7
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Except for the approximate number of holders of record of common stock,
information required by this item is incorporated by reference from portions of
the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------- ----
<S> <C>
Quarterly Stock Data....................................................................... 21
Corporate Information...................................................................... 53
</TABLE>
The numbers of holders of record of Class A Common Stock and of Class B Common
Stock at February 28, 1999 were 1,519 and 1,515, respectively. Including those
whose shares are carried in street names, the Registrant estimates that there
are approximately 6,000 Class A and 8,000 Class B holders of its common stock.
ITEM 6 - SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from pages
50 and 51 of the Annual Report to Stockholders under the caption "Historical
Summary." Incorporation by reference from these pages is restricted to the
information for the fiscal years 1995 through 1999 provided under the following
captions: Revenues, earnings (loss) from continuing operations, net earnings
(loss), earnings (loss) per share (basic and diluted), cash dividends per
share, total assets and long-term debt.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
Information required by this item is incorporated by reference from pages
17 through 26 of the Annual Report to Stockholders.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from pages
19 and 20 of the Annual Report to Stockholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------- ----
<S> <C>
Consolidated Financial Statements........................................................... 27 - 30
Notes to Consolidated Financial Statements.................................................. 31 - 44
Report of Independent Public Accountants.................................................... 45
Unaudited Supplemental Oil and Gas Information.............................................. 46 - 49
Unaudited Quarterly Financial Data.......................................................... 26
</TABLE>
-6-
<PAGE> 8
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
No Form 8-K was filed by the Registrant during its fiscal years ended
January 31, 1999 and 1998 or any subsequent period reporting a change of
accountants or any disagreement on any matter of accounting principles,
practices or financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from
portions of the Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after January 31, 1999
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (Proxy
Statement), under the caption "Election of Directors." See page 5 of this Form
10-K for information regarding Executive Officers of the Registrant.
ITEM 11 - EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1999, under the captions
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1999, under the caption "Voting
Securities and Principal Holders Thereof."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1999, under the caption "Certain
Transactions."
-7-
<PAGE> 9
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------- ----
<S> <C>
Unaudited Quarterly Financial Data............................................................ 26
Consolidated Balance Sheets................................................................... 27
Consolidated Statements of Earnings........................................................... 28
Consolidated Statements of Stockholders' Equity............................................... 29
Consolidated Statements of Cash Flows......................................................... 30
Notes to Consolidated Financial Statements.................................................... 31 - 44
Report of Independent Public Accountants...................................................... 45
Unaudited Supplemental Oil and Gas Information................................................ 46 - 49
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULES
Page
----
<S> <C>
Report of Independent Public Accountants...................................................... S-1
Schedule I - Condensed Financial Information of the Registrant................................ S-2
at January 31, 1999 and 1998 and for the Years.................................. thru
Ended January 31, 1999, 1998 and 1997........................................... S-4
</TABLE>
Schedules not listed above are omitted as the information required to be set
forth therein is included in the consolidated financial statements or the
footnotes thereto, or the schedules are not applicable.
-8-
<PAGE> 10
EXHIBITS
3(a) Restated Articles of Incorporation of Mitchell Energy &
Development Corp., as amended through July 2, 1990 are
incorporated as an exhibit to this report by reference to
exhibit 3(a) of the annual report on Form 10-K dated January 31,
1992. The Certificate of Amendment dated June 24, 1992 is
incorporated as an exhibit to this report by reference to
exhibit 3 of the quarterly report on Form 10-Q for the quarter
ended July 31, 1992.
3(b) The Bylaws of Mitchell Energy & Development Corp. are
incorporated as an exhibit to this report by reference to
exhibit 3(b) of the annual report on Form 10-K dated January 31,
1996.
4(a) The senior indenture dated August 1, 1991 by and between
Mitchell Energy & Development Corp., as Issuer, and First City,
Texas - Houston, National Association (succeeded by Chase Bank
of Texas, N.A.), as Trustee, is incorporated as an exhibit to
this report by reference to exhibit 4(b) of File No. 33-42340.
4(b) The senior and subordinated indentures dated January 1, 1993 by
and between Mitchell Energy & Development Corp., as Issuer, and
NationsBank of Texas, National Association, as Trustee, are
incorporated as exhibits to this report by reference to exhibits
4(b) and 4(c) of File No. 33-61070. The first supplement to the
senior indenture dated January 15, 1994 is incorporated as an
exhibit to this report by reference to exhibit 4(a) of the
current report on Form 8-K dated January 18, 1994.
4(c) The revolving credit agreement dated as of July 28, 1998 among
Mitchell Energy & Development Corp., the several banks which are
parties thereto and The Chase Manhattan Bank, as administrative
agent for the banks, is incorporated as an exhibit to this
report by reference to exhibit 4 of the quarterly report on Form
10-Q for the quarter ended July 31, 1998. The first amendment to
this agreement dated March 15, 1999 is attached hereto as
exhibit 4(c).
Upon request, the Registrant will provide to the Securities and
Exchange Commission copies of all other instruments defining the
rights of holders of long-term debt of Mitchell Energy &
Development Corp. and its consolidated subsidiaries.
The following exhibits 10(a) through 10(m) filed under paragraph 10 of Item 601
of Regulation S-K are the Company's management contracts and compensation plans
or arrangements.
10(a) 1989 Stock Option Plan is incorporated as an exhibit to this
report by reference to exhibit 10(d) of the annual report on
Form 10-K dated January 31, 1992. The first amendment to such
Plan is incorporated as an exhibit to this report by reference
to exhibit 10(c) of the annual report on Form 10-K dated January
31, 1993.
10(b) 1995 Stock Option Plan is incorporated as an exhibit to this
report by reference to File No. 333-06981.
10(c) 1997 Bonus Unit Plan is incorporated as an exhibit to this report
by reference to exhibit (10(e) of the annual report on Form 10-K
dated January 31, 1999. The first amendment to this Plan
effective December 9, 1998 is attached hereto as exhibit 10(c).
10(d) 1998 Mutual Fund Option Plan is incorporated as an exhibit to
this report by reference to exhibit 10 of the quarterly report
on Form 10-Q for the quarter ended July 31, 1998. The first
amendment to this Plan effective January 1, 1999 is attached
hereto as exhibit 10(d).
10(e) Mitchell Energy & Development Corp. Restoration Benefit Plan
effective January 1, 1992 is incorporated as an exhibit to this
report by reference to exhibit 10(f) of the annual report on
Form 10-K dated January 31, 1994. The first amendment to this
Plan effective July 1, 1998 is attached hereto as exhibit 10(e).
-9-
<PAGE> 11
10(f) Mitchell Energy & Development Corp. Excess Benefit Plan (formerly
the Supplemental Retirement Plan) amended and restated effective
as of January 1, 1992 is incorporated as an exhibit to this
report by reference to exhibit 10(g) of the annual report on
Form 10-K dated January 31, 1994. The first amendment to this
Plan effective July 1, 1998 is attached hereto as exhibit 10(f).
10(g) Executive Excess Benefit Plan effective July 1, 1998.
10(h) Deferred compensation/supplementary life insurance arrangement
between the Registrant and certain of its executive officers is
incorporated as an exhibit to this report by reference to
exhibit 10(h) of the annual report on Form 10-K dated January
31, 1992.
10(i) The Supplemental Benefit Agreement dated August 17, 1990 between
the Registrant and George P. Mitchell is incorporated as an
exhibit to this report by reference to exhibit 10(h) of the
Annual Report on Form 10-K dated January 31, 1997.
10(j) Employment agreement between the Registrant and W. D. Stevens
dated January 3, 1994 is incorporated as an exhibit to this
report by reference to exhibit 10(j) of the annual report on
Form 10-K dated January 31, 1994.
10(k) Severance compensation agreement between the Registrant and
Thomas P. Battle.
10(l) Severance compensation agreement between the Registrant and
George P. Mitchell.
10(m) Severance compensation agreement between the Registrant and
W. D. Stevens.
10(n) Severance compensation agreement between the Registrant and
Philip S. Smith.
10(o) Severance compensation agreement between the Registrant and Allen
J. Tarbutton, Jr.
10(p) A written description (in lieu of a formal document) describing
the Registrant's commitment to contribute to the life insurance
program of George P. Mitchell is incorporated as an exhibit to
this report by reference to exhibit 10(m) of the annual report
on Form 10-K dated January 31, 1996.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Annual Report to Stockholders for the fiscal year ended January
31, 1999.
21 List of Subsidiaries as of January 31, 1999.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
99 Mitchell Energy & Development Corp. Thrift and Savings Plan -
Annual Report on Form 11-K for the fiscal year ended January 31,
1999.
REPORTS FILED ON FORM 8-K
No reports were filed on Form 8-K during the quarter ended January 31,
1999.
-10-
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Mitchell Energy & Development Corp.
/s/ George P. Mitchell April 12, 1999
- ------------------------------------
George P. Mitchell, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ George P. Mitchell April 12, 1999
- ------------------------------------
George P. Mitchell, Chairman
and Chief Executive Officer
/s/ Bernard F. Clark April 12, 1999
- ------------------------------------
Bernard F. Clark, Vice Chairman
/s/ W. D. Stevens April 12, 1999
- ------------------------------------
W. D. Stevens, Director, President
and Chief Operating Officer
/s/ Philip S. Smith April 12, 1999
- ------------------------------------
Philip S. Smith, Senior Vice President
Administration, Chief Financial Officer
and Principal Accounting Officer
/s/ Robert W. Baldwin April 12, 1999
- ------------------------------------
Robert W. Baldwin, Director
/s/ William D. Eberle April 12, 1999
- ------------------------------------
William D. Eberle, Director
-11-
<PAGE> 13
SIGNATURES (continued)
/s/ Shaker A. Khayatt April 12, 1999
- ------------------------------------
Shaker A. Khayatt, Director
/s/ Ben F. Love April 12, 1999
- ------------------------------------
Ben F. Love, Director
/s/ Walter A. Lubanko April 12, 1999
- ------------------------------------
Walter A. Lubanko, Director
/s/ J. Todd Mitchell April 12, 1999
- ------------------------------------
J. Todd Mitchell, Director
/s/ M. Kent Mitchell April 12, 1999
- ------------------------------------
M. Kent Mitchell, Director
/s/ Constantine S. Nicandros April 12, 1999
- ------------------------------------
Constantine S. Nicandros, Director
/s/ Raymond L. Watson April 12, 1999
- ------------------------------------
Raymond L. Watson, Director
-12-
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mitchell Energy & Development Corp.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Mitchell Energy & Development
Corp.'s Annual Report to Stockholders incorporated by reference in this Form
10-K, and have issued our report thereon dated March 29, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The financial statement schedule listed in Item 14 on page 8
is the responsibility of the Company's management and is presented for purposes
of complying with rules of the Securities and Exchange Commission, and is not
part of the basic financial statements. This financial statement schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1999
S-1
<PAGE> 15
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
===============================================================================
Mitchell Energy & Development Corp.
CONDENSED BALANCE SHEETS
January 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 10,093 $ 96,572
Income taxes receivable.................................................... 6,125 --
Net assets of discontinued operations...................................... -- 26,056
Other current assets....................................................... 5,455 3,984
-------- --------
Total current assets..................................................... 21,673 126,612
INVESTMENT IN CONSOLIDATED SUBSIDIARIES,
AT COST PLUS EQUITY IN UNDISTRIBUTED EARNINGS ........................... 308,591 389,778
ADVANCES TO SUBSIDIARIES .................................................. 460,607 314,097
TRUST FUND FOR NONQUALIFIED RETIREMENT BENEFITS ........................... 15,804 12,583
DEFERRED FINANCING COSTS .................................................. 1,450 1,447
OTHER ..................................................................... 57 57
-------- --------
$808,182 $844,574
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt....................................... $100,000 $ --
Other current liabilities.................................................. 12,629 14,442
-------- --------
Total current liabilities................................................ 112,629 14,442
LONG-TERM DEBT ............................................................ 362,467 414,267
DEFERRED CREDITS AND OTHER LIABILITIES .................................... 8,312 2,939
COMMITMENTS AND CONTINGENCIES (Note C)
STOCKHOLDERS' EQUITY ...................................................... 324,774 412,926
-------- --------
$808,182 $844,574
======== ========
</TABLE>
===============================================================================
Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1999, 1998 and 1997
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
EQUITY IN NET EARNINGS (LOSS) OF SUBSIDIARIES ........................... $ (55,883) $ 37,865 $ 85,475
---------- ---------- ----------
OTHER (INCOME) EXPENSE
Interest expense - third parties ........................................ 33,780 42,531 53,931
Interest income on subsidiary advances .................................. (31,199) (32,796) (54,846)
Interest income on cash investments ..................................... (553) (8,549) (498)
General and administrative expense (Note D) ............................. -- -- --
Other, net .............................................................. (2,174) (710) (176)
Income taxes (benefit) (Note B) ......................................... (2,775) (437) 763
---------- ---------- ----------
(2,921) 39 (826)
---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS .............................. (52,962) 37,826 86,301
---------- ---------- ----------
DISCONTINUED REAL ESTATE OPERATIONS
Earnings (loss) from operations, net of
income taxes of $4,071 and $8,914 ..................................... -- 7,440 16,925
Loss on sale, net of income taxes of $1,750 in 1999 and income tax
benefit of $25,878 in 1998 ............................................ 3,250 (67,123) --
---------- ---------- ----------
3,250 (59,683) 16,925
---------- ---------- ----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM ............................... (49,712) (21,857) 103,226
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT ............................. -- (13,250) --
---------- ---------- ----------
NET EARNINGS (LOSS) ..................................................... $ (49,712) $ (35,107) $ 103,226
========== ========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Class A - Earnings from continuing operations ........................... $ (1.11) $ .71 $ 1.64
Net earnings .................................................. (1.04) (.66) 1.96
Class B - Earnings from continuing operations ........................... (1.05) .77 1.68
Net earnings .................................................. (.99) (.72) 2.01
</TABLE>
- ------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed financial
statements.
S-2
<PAGE> 16
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
===============================================================================
Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Earnings (loss) from continuing operations ......................... $ (52,962) $ 37,826 $ 86,301
Adjustments to reconcile earnings (loss) from continuing
operations to cash provided by operating activities
Equity in net (earnings) loss of subsidiaries ............... 55,883 (37,865) (85,475)
Dividends from consolidated subsidiaries .................... 25,000 46,000 35,000
Deferred income taxes ....................................... (1,457) 7,662 39
Changes in operating assets and liabilities ................. (2,360) (7,247) 10,384
Other ....................................................... 3,026 1,556 972
---------- ---------- ----------
Cash provided by operating activities .......................... 27,130 47,932 47,221
---------- ---------- ----------
INVESTING ACTIVITIES
Investments in subsidiaries ........................................ (3,001) -- (550)
Proceeds from sale of TWC .......................................... -- 480,994 --
Advances (to) from subsidiaries, net ............................... (136,657) (92,734) 17,079
Funding of trust for nonqualified retirement benefits .............. (2,467) (1,332) (11,251)
Other, net ......................................................... (751) 96 (25)
---------- ---------- ----------
Cash provided by (used for) investing activities ............... (142,876) 387,024 5,253
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of debt ..................................... 48,200 -- --
Debt repayments .................................................... -- (285,733) --
Cash dividends (including special dividends of $12,462 in 1998) .... (24,910) (38,153) (26,342)
Debt extinguishment costs .......................................... -- (19,294) --
Treasury stock purchases ........................................... (9,217) (72,465) (3,917)
Other, net ......................................................... 2,267 3,082 399
---------- ---------- ----------
Cash provided by (used for) financing activities ............... 16,340 (412,563) (29,860)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS ......................... (99,406) 22,393 22,614
CASH PROVIDED BY DISCONTINUED OPERATIONS ........................... 12,927 5,535 45,945
CASH AND CASH EQUIVALENTS, beginning of year ....................... 96,572 68,644 85
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year ............................. $ 10,093 $ 96,572 $ 68,644
========== ========== ==========
</TABLE>
- ------------------------------------------------------------------
The accompanying notes are an integral part of these condensed financial
statements.
S-3
<PAGE> 17
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
===============================================================================
Mitchell Energy & Development Corp.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997
(A) General. The accompanying condensed financial statements of Mitchell Energy
& Development Corp. (MEDC) should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report to
Stockholders of Mitchell Energy & Development Corp. and subsidiaries (the
Company) for fiscal 1999, which is filed as an exhibit to this annual report on
Form 10-K. For information regarding the components of and an analysis of the
activity in stockholders' equity, refer to the Consolidated Statements of
Stockholders' Equity included in the Company's Annual Report to Stockholders.
See Notes to Consolidated Financial Statements included in the Company's Annual
Report to Stockholders as indicated below for information concerning the
following:
Discontinued real estate operations...................... Note 3
Long-term debt........................................... Note 5
Retirement benefits...................................... Note 9
Incentive compensation plans............................. Note 11
Common stock and stock options........................... Note 12
Earnings (loss) per share................................ Note 13
(B) Income Taxes. Deferred income taxes are provided on temporary differences
between the book and tax bases of MEDC's assets and liabilities. MEDC is
included in the consolidated tax return of the Company. As the parent company,
MEDC allocates to its subsidiaries amounts equal to the income taxes that the
subsidiaries would pay or receive as a refund if separate returns were filed.
(C) Debt Guarantees. MEDC had contingent liabilities totaling approximately
$17,200,000 at January 31, 1999, consisting of guarantees of third party debt.
(D) General and Administrative Expense Allocation. General and administrative
expense in the Condensed Statements of Earnings is net of amounts charged to
subsidiaries of $39,166,000; $31,978,000 and $30,823,000 in fiscal 1999, 1998
and 1997. The fiscal 1999 amount includes personnel reduction program costs of
$8,848,000. The charges to the subsidiaries are based on their estimated use of
accounting, legal, information systems and other services provided by MEDC which
are managed on a company wide basis.
(E) Statements of Cash Flows. Short-term investments with a maturity of three
months or less are considered to be cash equivalents. Interest paid totaled
$31,593,000; $45,030,000 and $53,100,000 during the years ended January 31,
1999, 1998 and 1997. Income taxes paid during those periods - net of tax
refunds, but including amounts paid in connection with the TWC sale - totaled
$(710,000); $63,764,000 and $9,988,000. There were no significant non-cash
investing or financing activities during the three-year period ended January
31, 1999.
(F) Financial Instruments. The aggregate fair value of MEDC's long-term debt
was $449,147,000 at January 31, 1999 (compared with an aggregate balance sheet
carrying value of $462,467,000). Fair values of its fixed-rate senior notes
were based on quoted market prices. For floating rate debt, carrying amounts
and fair values were assumed to be equal because of the nature of these
obligations. The carrying amounts of MEDC's other on-balance-sheet financial
instruments approximate their fair values. The aggregate cost to terminate
MEDC's off-balance-sheet financial instruments is not significant. MEDC has no
direct involvement with derivative financial instruments.
S-4
<PAGE> 18
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
EXHIBITS TO FORM 10-K
For the Fiscal Year Ended January 31, 1999
<PAGE> 19
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3(a) Restated Articles of Incorporation of Mitchell Energy &
Development Corp., as amended through July 2, 1990 are
incorporated as an exhibit to this report by reference to exhibit
3(a) of the annual report on Form 10-K dated January 31, 1992.
The Certificate of Amendment dated June 24, 1992 is incorporated
as an exhibit to this report by reference to exhibit 3 of the
quarterly report on Form 10-Q for the quarter ended July 31,
1992.
3(b) The Bylaws of Mitchell Energy & Development Corp are incorporated
as an exhibit to this report by reference to exhibit 3(b) of the
annual report on Form 10-K dated January 31, 1996.
4(a) The senior indenture dated August 1, 1991 by and between Mitchell
Energy & Development Corp., as Issuer, and First City, Texas -
Houston, National Association (succeeded by Chase Bank of Texas,
N.A.), as Trustee, is incorporated as an exhibit to this report
by reference to exhibit 4(b) of File No. 33-42340.
4(b) The senior and subordinated indentures dated January 1, 1993 by
and between Mitchell Energy & Development Corp., as Issuer, and
NationsBank of Texas, National Association, as Trustee, is
incorporated as an exhibit to this report by reference to exhibit
4(b) of File No. 33-61070. The first supplement to the senior
indenture dated January 15, 1994 is incorporated as an exhibit to
this report by reference to exhibit 4(a) of the current report on
Form 8-K dated January 18, 1994.
4(c) The revolving credit agreement dated as of July 28, 1998 among
Mitchell Energy & Development Corp., the several banks which are
parties thereto and The Chase Manhattan Bank, as administrative
agent for the banks, is incorporated as an exhibit to this report
by reference to exhibit 4 of the quarterly report on Form 10-Q
for the quarter ended July 31, 1998. The first amendment to this
agreement dated March 15, 1999 is attached hereto as exhibit
4(c).
10(a) 1989 Stock Option Plan is incorporated as an exhibit to this
report by reference to exhibit 10(d) of the annual report on Form
10-K dated January 31, 1992. The first amendment to such Plan is
incorporated as an exhibit to this report by reference to exhibit
10(c) of the annual report on Form 10-K dated January 31, 1993.
10(b) 1995 Stock Option Plan is incorporated as an exhibit to this
report by reference to File No. 333-06981.
10(c) 1997 Bonus Unit Plan is incorporated as an exhibit to this report
by reference to exhibit (10(e) of the annual report on Form 10-K
dated January 31, 1999. The first amendment to this Plan
effective December 9, 1998 is attached hereto as exhibit 10(c).
10(d) 1998 Mutual Fund Option Plan is incorporated as an exhibit to
this report by reference to exhibit 10 of the quarterly report on
Form 10-Q for the quarter ended July 31, 1998. The first
amendment to this Plan effective January 1, 1999 is attached
hereto as exhibit 10(d).
10(e) Mitchell Energy & Development Corp. Restoration Benefit Plan
effective January 1, 1992 is incorporated as an exhibit to this
report by reference to exhibit 10(f) of the annual report on Form
10-K dated January 31, 1994. The first amendment to this Plan
effective July 1, 1998 is attached hereto as exhibit 10(e).
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10(f) Mitchell Energy & Development Corp. Excess Benefit Plan (formerly
the Supplemental Retirement Plan) amended and restated effective
as of January 1, 1992 is incorporated as an exhibit to this
report by reference to exhibit 10(g) of the annual report on Form
10-K dated January 31, 1994. The first amendment to this Plan
effective July 1, 1998 is attached hereto as exhibit 10(f).
10(g) Executive Excess Benefit Plan effective July 1, 1998.
10(h) Deferred compensation/supplementary life insurance arrangement
between the Registrant and certain of its executive officers is
incorporated as an exhibit to this report by reference to exhibit
10(h) of the annual report on Form 10-K dated January 31, 1992
10(i) The Supplemental Benefit Agreement dated August 17, 1990 between
the Registrant and George P. Mitchell is incorporated as an
exhibit to this report by reference to exhibit 10(h) of the
Annual Report on Form 10-K dated January 31, 1997.
10(j) Employment agreement between the Registrant and W. D. Stevens
dated January 3, 1994 is incorporated as an exhibit to this
report by reference to exhibit 10(j) of the annual report on Form
10-K dated January 31, 1994.
10(k) Severance compensation agreement between the Registrant and
Thomas P. Battle.
10(l) Severance compensation agreement between the Registrant and
George P. Mitchell.
10(m) Severance compensation agreement between the Registrant and W. D.
Stevens.
10(n) Severance compensation agreement between the Registrant and
Philip S. Smith.
10(o) Severance compensation agreement between the Registrant and Allen
J. Tarbutton, Jr.
10(p) A written description (in lieu of a formal document) describing
the Registrant's commitment to contribute to the life insurance
program of George P. Mitchell is incorporated as an exhibit to
this report by reference to exhibit 10(m) of the annual report on
Form 10-K dated January 31, 1996.
12 Computation of Ratio of Earnings to Fixed Charges
13 Annual Report to Stockholders for the fiscal year ended January
31, 1999
21 List of Subsidiaries as of January 31, 1999
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99 Mitchell Energy & Development Corp. Thrift and Savings Plan -
Annual Report on Form 11-K for the fiscal year ended January 31,
1999
</TABLE>
<PAGE> 1
EXHIBIT 4(c)
FIRST AMENDMENT
FIRST AMENDMENT, dated as of March 15, 1999 (this "Amendment"), to the
Revolving Credit Agreement, dated as of July 28, 1998 (the "Credit Agreement"),
among MITCHELL ENERGY & DEVELOPMENT CORP., a Texas corporation (the "Borrower"),
the several banks and other financial institutions or entities from time to time
parties thereto (the "Lenders"), including each of THE CHASE MANHATTAN BANK and
CHASE MANHATTAN BANK DELAWARE in their respective capacities as Issuing Lender,
THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative
agent ("Administrative Agent"), PNC BANK, NATIONAL ASSOCIATION, a national
banking association, as syndication agent (the "Syndication Agent") and
NATIONSBANK, N.A., a national banking association, as documentation agent (the
"Documentation Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower; and
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Required Lenders have agreed, that certain provisions of the
Credit Agreement be amended in the manner provided for in this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
II. Amendments to Credit Agreement.
1. Amendment to Subsection 6.3. Subsection 6.3 of the Credit Agreement
is hereby amended by deleting the amount "$330,000,000" appearing therein and
substituting, in lieu thereof, the amount "$275,000,000."
2. Amendment to Schedule 1. Schedule 1 to the Credit Agreement is
hereby amended by deleting said Schedule in its
<PAGE> 2
2
entirety and substituting in lieu thereof a new Schedule 1 in the form set forth
in Annex A to this Amendment.
III. Conditions to Effectiveness. This Amendment shall become effective
as of (and the new Schedule 1 shall take effect on) March 15, 1999 subject to
the Administrative Agent receiving the following:
1. counterparts hereof executed by the Borrower, the Lenders and the
Administrative Agent,
2. resolutions of the Borrower in form and substance satisfactory to
the Administrative Agent authorizing the execution, delivery and performance of
this Amendment and
3. for the account of each Lender executing this Amendment no later
than March 15, 1999 a fee paid of .125% of such Lender's Commitment.
IV. General.
1. Representation and Warranties. To induce the Administrative Agent
and the Lenders parties hereto to enter into this Amendment, the Borrower hereby
represents and warrants to the Administrative Agent and all of the Lenders as of
the date hereof that the representations and warranties made by the Borrower in
the Credit Agreement are true and correct in all material respects on and as of
such date, after giving effect to the effectiveness of this Amendment, as if
made on and as of such date.
2. Payment of Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and the
Credit Documents are and shall remain in full force and effect.
4. Governing Law; Counterparts. This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
<PAGE> 3
3
(b) This Amendment may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Amendment
may be delivered by facsimile transmission of the relevant signature pages
hereof.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT CORP.
By:
----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, an Issuing
Lender and a Lender
By:
----------------------------------
Name:
Title:
NATIONSBANK, N.A., as
Documentation Agent and as a
Lender
By:
----------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION, as
Syndication Agent and as a Lender
By:
----------------------------------
Name:
Title:
<PAGE> 5
5
CHASE MANHATTAN BANK DELAWARE, as
an Issuing Lender
By:
----------------------------------
Name:
Title:
BANK ONE, TEXAS, N.A., as a Lender
By:
----------------------------------
Name:
Title:
ABN AMRO BANK N.V., HOUSTON AGENCY,
as a Lender
By:
----------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY, as a Lender
By:
----------------------------------
Name:
Title:
<PAGE> 6
6
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as a Lender
By:
----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as
a Lender
By:
----------------------------------
Name:
Title:
<PAGE> 7
7
ANNEX A
to First Amendment
"Schedule 1
to Credit
Agreement
The Applicable Margin, Letter of Credit Commission Rate and Commitment Fee Rate
will be based on ratings (the "Bond Rating") of the Borrower's senior unsecured
debt by Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service
Inc. ("Moody's"). Any change in such margins and fees resulting from a change in
the Bond Rating shall be effective immediately. The figures below are in
percentages.
<TABLE>
<CAPTION>
==========================================================================================================
Level 1 Level 2 Level 3 Level 4 Level 5
Rating S&P/Moody's* BBB+/ BBB/ BBB-/ BB+/ BB/
Baa1 or Baa2 Baa3 Ba1 Ba2 or
higher lower
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Letter of Credit Commission Rate** .50 .70 .875 1.125 1.375
- ----------------------------------------------------------------------------------------------------------
Applicable Margin-Eurodollar Loans** .50 .70 .875 1.125 1.375
- ----------------------------------------------------------------------------------------------------------
Applicable Margin-ABR Rate Loans** 0 0 0 .125 .375
- ----------------------------------------------------------------------------------------------------------
Commitment Fee Rate .125 .15 .225 .30 .375
==========================================================================================================
</TABLE>
* In the event such Bond Ratings fall within different Levels, the
foregoing will be based on the higher of the two Bond Ratings, provided
that if the higher (i.e. lower numbered) Level shall be two or more
Levels higher than the lower Level, the Level immediately below such
higher Level shall govern. In the event no Bond Rating is in effect,
Level 5 shall govern.
** On any date, when the Aggregate Outstanding Extension of Credit of the
Lenders exceeds 33 1/3% of the Commitments of the Lenders then in
effect, the Letter of Credit Commission Rate, the Applicable
Margin-Eurodollar Loans and the Applicable Margin-ABR Rate Loans
(Levels 4 and 5) set forth above will each be deemed automatically
increased by .125%."
<PAGE> 1
EXHIBIT 10(c)
FIRST AMENDMENT TO
MITCHELL ENERGY & DEVELOPMENT CORP.
1997 BONUS UNIT PLAN
WHEREAS, Mitchell Energy & Development Corp. (the "Company") has
previously adopted the Mitchell Energy & Development Corp. 1997 Bonus Unit Plan
("the Plan"); and
WHEREAS, the Company desires to amend the Plan.
NOW, THEREFORE the Plan shall be amended as follows effective as of
December 9, 1998:
1. Section V shall be amended to read as follows:
"The aggregate number of Bonus Units which may be granted by the
Company from time to time under the Plan, subject to adjustment in
accordance with the provisions of Article VII hereof, shall not
exceed 1,500,000. If any Bonus Units expire or terminate for any
reason without having been exercised in full, such Bonus Units shall
be available for purposes of the Plan. The number of Bonus Units
redeemed upon the exercise thereof shall be charged against the
aggregate number of Bonus Units available for purposes of the Plan."
2. As amended hereby, the Plan is specifically ratified and affirmed.
Mitchell Energy & Development Corp.
<PAGE> 1
EXHIBIT 10(d)
FIRST AMENDMENT TO
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
WHEREAS, Mitchell Energy Corp. (the "Company") has previously adopted the
Mitchell Energy & Development Corp. 1998 Mutual Fund Option Plan (the "Plan");
and
WHEREAS, the Company desires to amend the Plan.
NOW, THEREFORE the Plan shall be amended as follows effective as of
January 1, 1999:
1. The following sentences shall be added to Section V.A. of the Plan:
Plan provisions to the contrary notwithstanding, an individual who is
a participant in the Plan at the time of his termination of
employment from the Company, who has satisfied the requirements for
receiving a normal retirement or early retirement benefit under the
Mitchell Energy & Development Corp. Retirement Plan, and who
commences his benefit under the Mitchell Energy & Development Corp.
Retirement Plan coincident with his termination of employment may
file with the Secretary of the Company an irrevocable election to
receive an Option in lieu of all or a percent of all of the cash
compensation that would otherwise have been payable to him in all
Plan Years after the year of his termination of employment if such
election is made prior to the earlier of 30 days after termination of
employment or the first day of the Plan Year following termination of
employment. Cash compensation for purposes of the preceding sentence
shall have the same meaning as cash compensation in the first
sentence of this section, except it shall not include compensation
from any nonqualified retirement plan.
2. As Amended hereby, the Plan is specifically ratified and affirmed.
Mitchell Energy & Development Corp.
<PAGE> 1
EXHIBIT 10(e)
FIRST AMENDMENT
TO THE
MITCHELL ENERGY & DEVELOPMENT CORP.
RESTORATION BENEFIT PLAN
WHEREAS, Mitchell Energy & Development Corp. (the "Company") adopted
the Mitchell Energy & Development Corp. Restoration Benefit Plan (the "Plan") as
amended and restated effective as of January 1, 1994 to provide deferred
compensation to a select group of management or highly compensated employees.
This deferred compensation is intended to supplement the retirement benefits
available to such employees pursuant to the Mitchell Energy & Development Corp.
Retirement Plan (the "Retirement Plan") when such retirement benefits are
restricted due to the limitations of Section 401(a)(17) of the Internal Revenue
Code of 1986 as amended (the "Code"); and
WHEREAS, such Plan is intended to be an unfunded "top hat" benefit plan
that is exempt from the requirements of Parts 2, 3 and 4 of Title I of the
Employee Retirement Income Security Act of 1974 as amended ("ERISA") pursuant to
the exemptions in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA; and
WHEREAS, the Company adopted the Mitchell Energy & Development Corp.
1998 Mutual Fund Option Plan (the "MFOP") effective July 1, 1998, to provide
certain eligible employees with the means to obtain option contracts from the
Company through the deferral of all or a percent of such employee's cash
compensation, such as salary, bonus, bonus unit proceeds, and performance unit
proceeds; and
WHEREAS, the Board of Directors of the Company approved a resolution
requiring that the amount of cash compensation deferred under the MFOP be
included in the employee's compensation for benefit purposes under the terms of
the Plan;
NOW THEREFORE, BE IT RESOLVED THAT, the Plan shall be amended as
follows:
1. Section 2.1 shall be amended by adding the following new
definition as the definition designated "(b)" and the letter
designations for the remaining definitions shall be changed
accordingly:
(b) "Compensation" means Compensation within the meaning
set forth in Section 2.1(l) of the Retirement Plan;
provided, however, that such Compensation shall
include any salary or bonus that is deferred pursuant
to the terms of the Mitchell Energy & Development
Corp. 1998 Mutual Fund Option Plan. Such term shall
not include any bonus unit proceeds or performance
unit proceeds or any other amounts not included in
the definition of Compensation in the Retirement Plan
which may be deferred pursuant to the terms of the
Mitchell Energy & Development Corp. 1998 Mutual Fund
Option Plan or otherwise.
<PAGE> 2
2. Section 4.1(a) (1) of the Plan shall be amended to read as
follows:
(1) is the amount of the monthly normal retirement
benefit that would have been payable under the
Retirement Plan to such Eligible Participant if the
provisions of the Retirement Plan were administered
(i) without regard to the benefit limitations of Code
sections 401(a)(17) and 415; and (ii) using the
definition of Compensation set forth in Section
2.1(b) of this Plan; and
The undersigned, being duly authorized on behalf of the Company, has
executed this First Amendment to the Plan on the _______ day of________________,
1998, to be effective as of July 1, 1998.
MITCHELL ENERGY & DEVELOPMENT CORP.
BY:
-------------------------------------
<PAGE> 1
EXHIBIT 10(f)
FIRST AMENDMENT
TO THE
MITCHELL ENERGY & DEVELOPMENT CORP.
EXCESS BENEFIT PLAN
WHEREAS, Mitchell Energy & Development Corp. (the "Company") adopted
the Mitchell Energy & Development Corp. Excess Benefit Plan (the "Plan") as
amended and restated effective as of January 1, 1992 to provide certain eligible
employees deferred compensation benefits in excess of the benefits available to
such employees pursuant to the Mitchell Energy & Development Corp. Retirement
Plan (the "Retirement Plan"). This deferred compensation is intended to
supplement the retirement benefits available to such employees pursuant to the
Mitchell Energy & Development Corp. Retirement Plan (the "Retirement Plan") when
such retirement benefits are restricted due to the limitations of Section 415 of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, such Plan is intended to be an unfunded excess benefit plan
that is exempt from the requirements of Title I of the Employee Retirement
Income Security Act of 1974 as amended ("ERISA") under Section 4(b)(5) of ERISA;
and
WHEREAS, the Company adopted the Mitchell Energy & Development Corp.
1998 Mutual Fund Option Plan (the "MFOP") and effective July 1, 1998, to provide
certain eligible employees with the means to obtain options from the Company to
purchase shares of selected mutual funds through the deferral of all or part of
such employee's cash compensation; and
WHEREAS, effective July 1, 1998, the Company adopted the Mitchell
Energy & Development Corp. Executive Excess Benefit Plan to provide benefits in
excess of the Code section 415 limits to eligible employees who have deferred
compensation pursuant to the MFOP and including such deferred compensation in
the definition of compensation for benefit purposes under such plan;
WHEREAS, the Company wishes to avoid the unintended duplication of
benefits;
NOW THEREFORE, BE IT RESOLVED THAT, the Plan shall be amended as
follows:
1. Section 3.1 shall be amended to read as follows:
"3.1 Eligibility. A Participant who is entitled to retirement
benefits, or a person entitled to survivor benefits with
respect to such Participant, pursuant to the Retirement Plan
will be eligible for payments under this Plan provided
payments that would otherwise have been made under the
Retirement Plan or with respect to such Participant have been
reduced by the limitations on such payments set forth in the
Retirement Plan, as required by Code section 415; provided,
however, that no Participant who has deferred compensation
pursuant to the Mitchell Energy & Development Corp. 1998
Mutual Fund Option Plan and who is an
<PAGE> 2
eligible participant in the Mitchell Energy & Development
Corp. Executive Excess Benefit Plan upon Retirement shall also
be eligible to participant in this Plan."
2. Section 4.1 of the Plan shall be amended by adding a new
paragraph (c) to the end thereof which shall read as follows:
"(c) No Duplication of Benefits. Under no circumstances will
any employee be entitled to receive benefits under both this
Plan and the Mitchell Energy & Development Corp. Executive
Excess Benefit Plan."
3. Section 4.3 of the Plan shall be amended by substituting a
semi-colon for the last period thereof and adding a phrase to
read as follows:
"provided further, however, that an Eligible Participant (or
any benefit recipient) shall have no right to a benefit under
this Plan if such Eligible Participant subsequently becomes
eligible for participation in the Mitchell Energy &
Development Corp. Executive Excess Plan."
The undersigned, being duly authorized on behalf of the Company, has
executed this First Amendment to the Plan on the _______ day of _______________,
1998, to be effective as of July 1, 1998.
MITCHELL ENERGY & DEVELOPMENT CORP.
BY:
------------------------------
<PAGE> 1
EXHIBIT 10(g)
MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE EXCESS BENEFIT PLAN
(Adopted Effective as of July 1, 1998)
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MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE EXCESS BENEFIT PLAN
(Adopted Effective as of July 1, 1998)
TABLE OF CONTENTS
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ARTICLE I. ESTABLISHMENT AND PURPOSE....................................................................... 1
1.1. Establishment and Amendment of Plan............................................................. 1
1.2. History and Purpose............................................................................. 1
1.3. Application of the Plan......................................................................... 2
ARTICLE II. DEFINITIONS AND CONSTRUCTION.................................................................... 2
2.1. Definitions..................................................................................... 2
2.2. Gender and Number; Headings..................................................................... 4
2.3. Incorporation of the Retirement Plan............................................................ 4
ARTICLE III. PARTICIPATION................................................................................... 4
3.1. Eligibility..................................................................................... 4
3.2. Participation................................................................................... 5
ARTICLE IV. BENEFITS........................................................................................ 5
4.1. Amount of Benefits.............................................................................. 5
4.2. Form of Payment and Commencement Date........................................................... 6
4.3. Vesting......................................................................................... 7
4.4. Death Benefits.................................................................................. 7
ARTICLE V. ADMINISTRATION.................................................................................. 8
5.1. Administration.................................................................................. 8
5.2. Finality of Determination....................................................................... 8
5.3. Expenses........................................................................................ 8
5.4. Indemnification and Exculpation................................................................. 8
ARTICLE VI. FUNDING OF THE PLAN............................................................................. 9
6.1. Funding......................................................................................... 9
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ARTICLE VII. MERGER, AMENDMENT, AND TERMINATION............................................................. 10
7.1. Merger, Consolidation, or Acquisition.......................................................... 10
7.2. Amendment and Termination...................................................................... 10
ARTICLE VIII. ADOPTION PROCEDURE............................................................................. 10
8.1. Adoption Procedure............................................................................. 10
8.2. Withdrawal of Participating Employer........................................................... 11
ARTICLE IX. GENERAL PROVISIONS............................................................................. 11
9.1. Nonalienation.................................................................................. 11
9.2. Effect on Other Benefit Plans.................................................................. 12
9.3. Severability................................................................................... 12
9.4. Applicable Law................................................................................. 12
9.5. Employer-Employee Relationship................................................................. 12
9.6. Incompetence................................................................................... 13
9.7. Binding on Employer, Eligible Participants and Their Successors................................ 13
9.8. Tax Liability.................................................................................. 13
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MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE EXCESS BENEFIT PLAN
(Adopted Effective as of July 1, 1998)
Article I. Establishment and Purpose
1.1. Establishment of Plan. MITCHELL ENERGY & DEVELOPMENT CORP., a
Texas corporation ("Company") hereby adopts an unfunded benefit plan described
as the "Mitchell Energy & Development Corp. Executive Excess Benefit Plan" (the
"Plan").
1.2. History and Purpose. The Company previously adopted and continues
to maintain an unfunded benefit plan known as the "Mitchell Energy & Development
Corp. Excess Benefit Plan" (the "Excess Plan"). The Excess Plan was established
and is maintained solely for the purpose of providing certain employees who are
eligible to receive benefit payments under the "Mitchell Energy & Development
Corp. Retirement Plan," as amended and restated effective as of February 1, 1989
and as amended thereafter ("Retirement Plan"), such portion of such benefit
payments as would have been payable to such employees under the Retirement Plan
if the maximum annual benefit limitations under Code section 415 had not been
applied to such benefit payments. In this regard, it is the intent that the
Excess Plan meets the requirements and be classified as an "excess benefit plan"
as described in section 3(36) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and as such that the Excess Plan be exempt from the
requirements of Title I of ERISA. Effective July 1, 1998, the Company
established and maintains the Mitchell Energy & Development Corp 1998 Mutual
Fund Option Plan (the "Option Plan") for the purpose of allowing a select group
of management or highly compensated employees to defer compensation and receive
options to purchase shares of selected mutual funds in lieu thereof. The Plan is
hereby established for the purpose of providing benefits similar to those
provided under the Excess Plan to a select group of
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management or highly compensated employees within the meaning of section 201(2)
of ERISA, who have deferred compensation under the Option Plan but including
such deferred compensation in the calculation of benefits due such employees. It
is intended that the Plan be exempt from the relevant requirements of Title I of
ERISA . The Plan is not intended to satisfy the qualification requirements of
Code section 401.
1.3. Application of the Plan. The terms of this Plan are applicable
only to or with respect to those Participants who are eligible to receive a
Pension benefit under the Retirement Plan on or after January 1, 1992, and who
become Eligible Participants under this Plan on or after such date.
Article II. Definitions and Construction
2.1. Definitions. All terms used in this Plan shall have the same
meanings assigned to them under the provisions of the Retirement Plan, unless
otherwise qualified by the context hereof. Notwithstanding the prior sentence,
the following terms shall have the meanings set forth below, unless their
context clearly indicates to the contrary:
(a) "Compensation" means Compensation within the meaning set forth
in Section 2.1(l) of the Retirement Plan; provided, however,
that for purposes of calculating benefits due under this Plan,
such Compensation shall include any salary or bonus that is
deferred pursuant to the terms of the Mitchell Energy &
Development Corp. 1998 Mutual Fund Option Plan. Compensation
shall not include any bonus unit proceeds or performance unit
proceeds or any other amounts not included in the definition
of Compensation in the Retirement Plan which may be deferred
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pursuant to the terms of the Mitchell Energy & Development
Corp. 1998 Mutual Fund Option Plan or otherwise.
(b) "Eligible Participant" means an individual who satisfies the
conditions of Sections 3.1 and 3.2.
(c) "Employer" means the Company and each other Employer who is a
participating Employer under the Retirement Plan and who has
elected to become a participating Employer under this Plan as
provided in Article VIII.
(d) "Excess Plan" means the Mitchell Energy & Development Corp.
Excess Benefit Plan.
(e) "Participant" means an individual who has qualified as a
"Participant" under the Retirement Plan and who maintains such
status at any relevant date.
(f) "Plan" means the "Mitchell Energy & Development Corp.
Executive Excess Benefit Plan" as set forth in this document
and as the same may be amended from time to time.
(g) "Option Plan" means the Mitchell Energy & Development Corp.
1998 Mutual Fund Option Plan.
(h) "Optionee" means an employee of the Company who has been
granted any right under Section V of the Option Plan to defer
any salary or bonus under the Option Plan.
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(i) "Retirement Plan" means the "Mitchell Energy & Development
Corp. Retirement Plan," as amended and restated effective as
of February 1, 1989, and as the same may thereafter be amended
from time to time.
2.2. Gender and Number; Headings. Except when otherwise indicated by
the context, any masculine terminology when used in this Plan shall also include
the feminine gender, and the definition of any term in the singular shall also
include the plural. Headings of Articles and Sections herein are included solely
for convenience, and if there is any conflict between such headings and the text
of the Plan, the text shall control.
2.3. Incorporation of the Retirement Plan. The Retirement Plan is
hereby incorporated by reference into and shall form a part of this Plan as
fully as if set forth herein verbatim. Any amendment made to the Retirement Plan
shall also be incorporated by reference into and form a part of this Plan,
effective as of the effective date of such amendment. The Retirement Plan,
whenever referred to in this Plan, shall mean the Retirement Plan as amended, as
it exists as of the date any determination is made of benefits payable under
this Plan.
Article III. Participation
3.1. Eligibility. A Participant who is entitled to retirement benefits,
or a person entitled to survivor benefits with respect to such Participant,
pursuant to the Retirement Plan will be eligible for payments under this Plan
provided that (i) payments that would otherwise have been made under the
Retirement Plan to or with respect to such Participant have been reduced by the
limitations on such payments set forth in the Retirement Plan, as required by
Code section 415; (ii) such Participant is a member of a select group of
management or highly compensated employees who has, at any time, deferred
compensation pursuant to the terms of the Option Plan;
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and (iii) such Participant is not an eligible participant in the Excess Plan at
the time that benefits are calculated hereunder.
3.2. Participation. A person who is eligible for benefits under the
Plan as described in Section 3.1 shall become an Eligible Participant in the
Plan as of the first day of the calendar month in which such person meets the
eligibility conditions in Section 3.1.
Article IV. Benefits
4.1. Amount of Benefits.
(a) In General. If benefits under the Retirement Plan become
payable at or after age 65 in the form of a single life
annuity to a Participant who is an Eligible Participant, the
monthly excess retirement benefit payable under this Plan to
such Eligible Participant shall be equal to the difference
between the amount in
(1) and the amount in (2) where--
(2) is the amount of the monthly normal retirement
benefit that would have been payable under the
Retirement Plan to such Eligible Participant if the
provisions of the Retirement Plan were administered
(i) without regard to the benefit limitations of Code
section 415; and (ii) using the definition of
Compensation set forth in Section 2.1(a) of this
Plan; and
(3) is the amount of the monthly normal retirement
benefit payable to such Eligible Participant under
the Retirement Plan.
(b) Payments at Other Times and Other Forms. If benefits under the
Retirement Plan become payable at a time other than as
provided in Section 4.1(a) or in a form of
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payment other than single life annuity, the amount of the
monthly excess retirement benefit payable under this Plan
shall be the actuarial equivalent of the amount specified in
Section 4.1(a), computed using the same actuarial factors and
assumptions used to compute the benefit payable under the
Retirement Plan.
(c) No Duplication of Benefits. Under no circumstances will any
employee be entitled to receive benefits under both this Plan
and the Excess Plan. Benefits shall be calculated and paid
pursuant to the terms of the plan, if any, in which such
employee is an eligible participant upon such eligible
participant's Retirement.
4.2. Form of Payment and Commencement Date.
(a) Form of Payment. The benefits payable under this Plan shall be
paid to the same recipients and in the same form and at the
same time or times as the limited benefits are payable to the
recipients under the Retirement Plan and shall cease to any
recipient at the same time as benefits payable to such
recipient under the Retirement Plan shall cease.
(b) Lump Sum Option. If the lump sum actuarial equivalent of any
benefits payable under this Plan is $10,000 or less, the
Committee, in its sole discretion, may pay such benefits due
the recipient under this Plan in the form of such lump sum
amount. The actuarial assumptions for computing the lump sum
amount shall be determined by the Committee. The payment of
the lump sum shall be in full discharge of the Employer's
obligations under the Plan to the eligible recipient of such
benefits.
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(c) Commencement Date. Excess retirement benefits payable under
Section 4.1 shall commence as of the same date that benefits
commence under the Retirement Plan. However, upon application
by an Eligible Participant prior to benefit commencement under
the Retirement Plan, the Committee may, in its sole
discretion, determine that benefit payments under this Plan to
such Eligible Participant shall commence on a later benefit
commencement date, as agreed to by the Committee.
4.3. Vesting. An Eligible Participant shall become vested in the
benefits payable under Section 4.1 at the same time that he becomes vested under
the Retirement Plan. However, an Eligible Participant (or any benefit recipient)
shall have no right to a benefit under this Plan if the Committee or the Company
determines that the Eligible Participant engaged in a willful, deliberate, or
gross act of commission or omission which is injurious to the finances or
reputation of the Company or any of its affiliates; provided further, however,
that an Eligible Participant (or any benefit recipient) shall have no right to a
benefit under this Plan if such Eligible Participant becomes eligible for
participation in the Excess Plan.
4.4. Death Benefits. In the event any death benefit payable under the
Retirement Plan prior to commencement of the Pension payable thereunder is
limited by Code section 415, the amount by which such death benefit is so
limited (using the definition of Compensation set forth in Section 2.1(a) of
this Plan) shall be payable hereunder at the same time, to the same person, and
in the same manner as the death benefit payable under the Retirement Plan.
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Article V. Administration
5.1. Administration. This Plan shall be administered by the Committee
appointed pursuant to the terms of the Retirement Plan. The Committee shall
administer this Plan in a manner consistent with the administration of the
Retirement Plan, except that this Plan shall be administered as an unfunded plan
which is not intended to meet the qualification requirements of Code section
401. The Committee shall have the same rights and authority granted to it under
the Retirement Plan, which shall include the full power and authority to
interpret, construe and administer this Plan. The Committee shall establish and
maintain such accounts or records as the Committee may from time to time
consider necessary. Members of the Committee shall not participate in any action
or determination regarding their own benefits under the Plan.
5.2. Finality of Determination. The determination of the Committee as
to any disputed questions arising under this Plan, including questions of
construction and interpretation shall be final, binding, and conclusive upon all
persons. The Committee shall have the responsibility and the discretionary
authority to interpret the terms of this Plan; to correct any defect, supply any
omission or reconcile any inconsistency which may appear in the Plan; to
determine eligibility for benefits; and to determine the amount of such
benefits. The interpretations and determinations of the Committee shall be final
and binding unless determined by a court of competent jurisdiction to be
arbitrary and capricious.
5.3. Expenses. The expenses of administering this Plan shall be borne
by the Employers in the proportions determined by the Committee.
5.4. Indemnification and Exculpation. The members of the Committee, its
agents, and officers, directors, and employees of the Company or any other
Employer shall be indemnified
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and held harmless by the Employer against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Plan and against and from any and all
amounts paid by them in settlement (with the Company's written approval) or paid
by them in satisfaction of a judgment in any such action, suit, or proceeding.
The foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
Article VI. Funding of the Plan
6.1. Funding. All amounts paid under this Plan shall be paid from the
general assets of the participating Employers. Benefits shall be reflected on
the accounting records of the Employers, but neither this Plan nor the
maintenance of such accounting records shall be construed to create, or require
the creation of a trust, custodial account, or escrow account with respect to
any Eligible Participant. No Eligible Participant shall have any right, title,
or interest whatsoever in or to any investment reserves, accounts, or funds,
that the Employers may purchase, establish, or accumulate to aid in providing
the unfunded benefit payments described in the Plan. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall create, or be
construed to create, a trust or fiduciary relationship of any kind between an
Employer or the Committee and an Eligible Participant or any other person.
Eligible Participants shall not acquire any interest under the Plan greater than
that of an unsecured general creditor of an Employer. The Trust Fund of the
Retirement Plan shall not be liable for any benefits accrued under this Plan.
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Article VII. Merger, Amendment, and Termination
7.1. Merger, Consolidation, or Acquisition. In the event of a merger,
consolidation, or acquisition where an Employer is not the surviving
organization, unless the successor or acquiring organization shall elect to
continue and carry on the Plan, this Plan shall terminate with respect to such
Employer, and no additional benefits shall accrue for the Eligible Participants
of such organization. Unpaid benefits shall continue to be paid as scheduled
unless the successor or acquiring organization elects to accelerate payment.
7.2. Amendment and Termination. The Board of Directors of the Company
may amend, modify, or terminate this Plan at any time and in any manner. Such
actions by the Board of Directors of the Company shall be binding upon all other
Employers. In addition, this Plan shall automatically terminate at the time of
the termination of the Retirement Plan, and any benefit payment obligation under
this Plan shall be measured with respect to the benefits which are payable from
the Retirement Plan irrespective of whether such benefits are actually paid due
to an insufficiency of assets to pay such benefits. In the event of a
termination of the Plan pursuant to this Section 7.2, no further benefits shall
accrue under this Plan, and amounts which are then payable shall continue to be
an obligation of the Employer and shall be paid as scheduled; provided, however,
that the Company reserves the right, in its sole discretion, to accelerate
payments to the affected Eligible Participants in the event of a complete or
partial termination of the Plan.
Article VIII. Adoption Procedure
8.1. Adoption Procedure. With the consent of the Company, any other
organization which satisfies the definition of Employer under the Retirement
Plan and this Plan and which is eligible by the law to do so may adopt this Plan
for the benefit of its Employees who are or who
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become Participants under the Retirement Plan, on express condition that the
Company assumes no liability as a result of any such adoption of this Plan by
any other organization. Such other organization may adopt this Plan by--
(a) executing an adoption instrument adopting the Plan, and
agreeing to be bound as a participating Employer by all the
terms, provisions, conditions, and limitations of the Plan;
and
(b) compiling and submitting all information required by the
Company with reference to persons in its employment eligible
for membership in the Plan. The participating Employers under
the Plan shall be listed at the end of the Plan.
The adoption instrument shall specify the effective date of such adoption of the
Plan and shall become, as to such organization and persons in its employment, a
part of this Plan. The participating Employers under the Plan shall be listed at
the end of the Plan.
8.2. Withdrawal of Participating Employer. Any participating Employer
may withdraw from the Plan by giving 60 days' notice in writing of its intention
to withdraw to the Company, unless a shorter notice shall be agreed to by the
Company.
Article IX. General Provisions
9.1. Nonalienation. No benefit payable at any time under the Plan shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, garnishment, or encumbrance of any kind, and shall not be subject to
or reached by any legal or equitable process (including execution, garnishment,
attachment, pledge, or bankruptcy) in satisfaction of any debt, liability, or
obligation, prior to receipt. Any attempt to alienate, sell, transfer, assign,
pledge, or
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otherwise encumber any such benefit, whether presently or thereafter payable,
shall be void. Notwithstanding the foregoing provisions of this Section 9.1, no
benefit amount payable under the Plan shall be payable until and unless any and
all amounts representing debts or other obligations owed to the Company or other
Employer by the Eligible Participant with respect to whom such amount would
otherwise be payable shall have been fully paid.
9.2. Effect on Other Benefit Plans. Amounts credited or paid under this
Plan shall not be considered to be compensation for the purposes of the
Retirement Plan or any other plans maintained by an Employer. The treatment of
such amounts under other employee benefit plans shall be determined pursuant to
the provisions of such plans.
9.3. Severability. In the event any provision of this Plan shall be
held invalid or illegal for any reason, any illegality or invalidity shall not
affect the remaining parts of this Plan, but this Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted, and the
Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.
9.4. Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas to the extent not pre-empted by
federal law.
9.5. Employer-Employee Relationship. The establishment of this Plan
shall not be construed as conferring any legal or other rights upon any Employee
or any person for a continuation of employment, nor shall it interfere with the
rights of an Employer to discharge any Employee or otherwise act with relation
to the Employee. An Employer may take any action (including discharge) with
respect to any Employee or other person and may treat such person
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without regard to the effect which such action or treatment might have upon such
person as an Eligible Participant under this Plan.
9.6. Incompetence. Every person receiving or claiming benefits under
the Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice, in a form and manner
acceptable to the Committee, that such person is incompetent, and that a
guardian, conservator, or other person legally vested with the care of such
person's person or estate has been appointed; provided, however, that if the
Committee shall find that any person to whom a benefit is payable under the Plan
is unable to care for such person's affairs because of incompetency, any payment
due (unless a prior claim therefor shall have been made by a duly appointed
legal representative) may be paid as provided in the Retirement Plan. Any such
payment so made shall be a complete discharge of liability therefor under the
Plan.
9.7. Binding on Employer, Eligible Participants and Their Successors.
This Plan shall be binding upon and inure to the benefit of the Employers, their
successors and assigns and the Eligible Participants, their heirs, executors,
administrators and legal representatives. The provisions of this Plan shall be
applicable with respect to each Employer separately, and amounts payable
hereunder shall be paid by the Employer of the particular Eligible Participant.
In the event any Eligible Participant becomes entitled to a benefit under the
Retirement Plan based on service with more than one Employer, the benefit
obligations under this Plan shall be apportioned among such Employers as
determined by the Committee.
9.8. Tax Liability. An Employer may withhold from any payment of
benefits hereunder any taxes required to be withheld and such sum as the
Employer may reasonably
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estimate to be necessary to cover any taxes for which the Employer may be liable
and which may be assessed with regard to such payment.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers effective as of July 1, 1998.
MITCHELL ENERGY &
DEVELOPMENT CORP.
By:
ATTEST: -------------------------------
Its:
------------------------------
By:
----------------------------------
Its:
------------------------
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PARTICIPATING EMPLOYERS UNDER
THE MITCHELL ENERGY & DEVELOPMENT
CORP. EXCESS BENEFIT PLAN
The following employers are participating Employers under the Mitchell Energy &
Development Corp. Excess Benefit Plan as of July 1, 1998, unless a later
participation date is designated:
MND Service, Inc.
Mitchell Energy & Development Corp.
Mitchell Energy Corp.
Mitchell Gas Service, L.P.
Mitchell Louisiana Gas Service, Inc.
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EXHIBIT 10(k)
EXECUTIVE CHANGE-IN-CONTROL
SEVERANCE AGREEMENT FOR
THOMAS P. BATTLE
Mitchell Energy & Development Corp.
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CONTENTS
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Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 2
Article 3. Severance Benefits 4
Article 4. Form and Timing of Severance Benefits 7
Article 5. Excise Tax Treatment 7
Article 6. Establishment of Trust 9
Article 7. The Company's Payment Obligation 9
Article 8. Legal Remedies 10
Article 9. Successors and Assignment 12
Article 10. Miscellaneous 12
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MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the ___ day of ________,
1998, by and between Mitchell Energy & Development Corp. (hereinafter referred
to as the "Company") and Thomas P. Battle (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company has approved the Company
entering into change-in-control severance agreements with certain key executives
of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control arise, the Board
believes it is imperative that the Company and the Board should be able to rely
upon the Executive to continue in his position, and that the Company should be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its shareholders without concern that the
Executive might be distracted by the personal uncertainties and risks created by
the possibility of a Change in Control;
WHEREAS, should the possibility of a Change in Control arise, in addition
to his regular duties, the Executive may be called upon to assist in the
assessment of such possible Change in Control, advise management and the Board
as to whether such Change in Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control,
and to induce the Executive to remain in the employ of the Company, and for
other good and valuable consideration, the Company and the Executive agree as
follows:
ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE
This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years. However, at the end of such three (3) year
period and, if extended, at the end of each additional year thereafter, the term
of this Agreement shall be extended automatically for one (1) additional year,
unless the Company delivers written notice six (6) months prior to the end of
such term, or extended term, to the Executive, that the Agreement will not be
extended. In such case, the Agreement will terminate at the end of the term, or
extended term, then in progress.
Notwithstanding the preceding, in the event a Change in Control occurs
during the original or any extended term, this Agreement will remain in effect
for a period of two (2) years after such Change in Control, and if within said
two (2) years the contingency factors occur which would entitle the Executive to
the Severance Benefits as provided herein, this Agreement shall remain in effect
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to the Executive.
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ARTICLE 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.
2.1 "ANNUAL BONUS" means the average of the actual annual bonus amounts
awarded to the Executive (regardless of when such award is paid or payable)
under the Company's annual bonus plan then in effect for the three (3) fiscal
years that have ended immediately prior to the fiscal year during which the
Executive's termination of employment occurs.
2.2 "BASE SALARY" means the greater of (1) the Executive's annual base
salary in effect immediately prior to the Change in Control, (2) the Executive's
annual base salary in effect immediately prior to the Executive's termination of
employment, or (3) the Executive's annual base salary in effect sixty (60) days
prior to the Executive's termination of employment.
2.3 "BENEFICIARY" means the persons or entities designated or deemed
designated by the Executive pursuant to Section 10.2 herein.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CAUSE" means (a) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his duties, and after the Executive has failed to resume
substantial performance of his duties on a continuous basis within thirty (30)
calendar days of receiving such demand; (b) the Executive's willfully engaging
in conduct (other than conduct covered under (a) above) which is demonstrably
and materially injurious to the Company, monetarily or otherwise; or (c) the
Executive's having been convicted of a felony. For purposes of this
subparagraph, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Company.
2.6 "CHANGE IN CONTROL" means (i) the Company shall not be the surviving
entity in any merger, consolidation, or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly owned subsidiary of
the Company); (ii) the Company sells, leases, or exchanges all or substantially
all of its assets to any other person or entity (other than a wholly owned
subsidiary of the Company); (iii) the Company is dissolved or liquidated; (iv)
any person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than fifty percent (50%) of the outstanding
shares of the Company's voting stock (based upon voting power), other than as a
result of the death or incapacity of George P. Mitchell; or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
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2.7 "CODE" means the United States Internal Revenue Code of 1986, as
amended, and any successors thereto.
2.8 "COMPANY" means Mitchell Energy & Development Corp., a Texas
corporation, or any successor thereto as provided in Article 9 herein.
2.9 "DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Executive was employed when such disability commenced.
2.10 "EFFECTIVE DATE" means the date of this Agreement set forth above.
2.11 "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.
2.12 "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
2.13 "GOOD REASON" shall mean, without the Executive's express written
consent, the occurrence of any one or more of the following during the Retention
Period:
(a) The assignment of the Executive to duties materially
inconsistent with the Executive's authorities, duties,
responsibilities, and status (including offices and
reporting requirements) as an employee of the Company, or a
reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from
those in effect immediately preceding the Change in
Control;
(b) A reduction by the Company in the Executive's total
compensation (including base salary, target annual bonus
opportunity, qualified retirement benefits, nonqualified
retirement benefits, welfare benefits, any long-term
incentive compensation opportunities, and/or any other
employee benefits) as in effect immediately prior to the
date on which a Change in Control occurs;
(c) The Company requiring the Executive to be based more than
sixty (60) miles from the location of his principal office
immediately prior to the Change in Control; or
(d) The failure of the Company to provide directors and
officers liability insurance covering the Executive
comparable to that provided immediately prior to the
occurrence of a Change in Control.
The Executive's continued employment shall not constitute a waiver of the
Executive's rights with respect to any circumstance constituting Good Reason.
2.14 "NOTICE OF TERMINATION" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
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2.15 "QUALIFYING TERMINATION" means any of the events described in Section
3.2 herein, the occurrence of which triggers the payment of Severance Benefits
hereunder.
2.16 "RETENTION PERIOD" means the period of time beginning on the date of
a Change in Control and ending on the date two (2) years following the Change in
Control.
2.17 "RETIREMENT" means a voluntary termination of employment by the
Executive which qualifies the Executive to receive immediately payable
retirement benefits under the Mitchell Energy & Development Corp. Retirement
Plan or under the successor or replacement of such retirement plan if it is then
no longer in effect. Notwithstanding the preceding, no Retirement will be deemed
to exist under this Agreement unless and until the Executive specifically
designates such termination a Retirement, and any such designation of Retirement
will in no way void the Executive's right to severance benefits under this
Agreement if the Executive is otherwise eligible for such severance benefits
(for example, if Executive also had Good Reason for his termination of
employment of if such termination occurs during the thirteenth (13th) calendar
month following the month in which a Change in Control occurs).
2.18 "SEVERANCE BENEFITS" means the payments and benefits provided for in
Section 3.3 herein.
2.19 "TRUST" means a grantor trust created pursuant to Article 6.
ARTICLE 3. SEVERANCE AND OTHER BENEFITS
3.1 RIGHT TO SEVERANCE AND OTHER BENEFITS. The Executive shall be entitled
to receive from the Company Severance Benefits, as described in Section 3.3
herein, if there has been a Change in Control and if a Qualifying Termination
has occurred. Unless otherwise provided under this Agreement or another
compensation plan, program, or written agreement, the Executive shall not be
entitled to receive Severance Benefits if he is terminated for Cause, or if his
employment with the Company ends due to death or Disability, or due to a
voluntary termination of employment by the Executive without Good Reason except
during the thirteenth (13th) calendar month following the month in which a
Change in Control occurs. Solely upon a Change in Control, the Executive shall
be entitled to the benefits provided in Section 3.5 hereof.
3.2 QUALIFYING TERMINATION. The occurrence of any one or more of the
following events shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) An involuntary termination of the Executive's employment
for reasons other than by the Company for Cause or by
reason of the Executive's death or Disability (1) within
the Retention Period pursuant to a Notice of Termination
delivered to the Executive by the Company; (2) within six
(6) months prior to a Change in Control; or (3) prior to
the date of a Change in Control but the Executive
reasonably demonstrates that such termination (a) was at
the request of a third party who has indicated an intention
or taken steps reasonably calculated to effect a Change in
Control and who effectuates such Change in Control; or (b)
otherwise arose in connection with, or in anticipation of,
a Change in Control which has been threatened or proposed
and which actually occurs; or
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(b) A voluntary termination by the Executive for Good Reason
within the Retention Period pursuant to a Notice of
Termination delivered tot he Company by the Executive; or
(c) A termination of the Executive's employment for any reason
other than by the Company for Cause (including without
limitation, a voluntary termination by the Executive, a
termination by the Company without Cause, or a termination
by reason of the Executive's death, Disability, or
Retirement) during the thirteenth (13th) calendar month
following the month in which a Change in Control occurs
pursuant to a Notice of Termination by the Executive
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event the Executive becomes
entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2
herein, the Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to the Executive's unpaid base salary,
accrued vacation pay, and earned but not taken vacation pay
through the Effective Date of Termination.
(b) An amount equal to two (2) times the Executive's Base
Salary.
(c) An amount equal to two (2) times the Executive's Annual
Bonus.
(d) The Annual Bonus multiplied by a fraction, the numerator of
which is the number of full completed days in the bonus
plan year through the Effective Date of Termination, and
the denominator of which is three hundred sixty-five (365).
This payment will be in lieu of any other payment to be
made to the Executive under the annual bonus plan for the
respective plan year.
(e) A continuation of the welfare benefits of health care, life
and accidental death and dismemberment, and disability
insurance coverage for twenty-four (24) months after the
Effective Date of Termination. These benefits shall be
provided to the Executive at the same premium cost, and at
the same coverage level, as in effect as of the Executive's
Effective Date of Termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, or for management employees with
respect to supplemental benefits, the cost and/or coverage
level, likewise, shall change for the Executive in a
corresponding manner.
(f) Solely for purposes of the Company's long-term incentive
plans, (i) the Executive shall be fully and immediately
vested in all of his outstanding awards under such plans,
(ii) the Executive shall be deemed to have terminated
employment with the Company by reason of retirement, and
(iii) the committee or committees administering such plans
shall be deemed to have consented to such retirement.
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<PAGE> 8
(g) For purposes of the Company's nonqualified retirement plans
and retiree medical plans, benefits shall be calculated
under the assumption that the Executive's employment
continued following the Effective Date of Termination for
three (3) full years (i.e., three (3) additional years of
age and service credits shall be added); provided, however,
that for purposes of determining "final average pay" under
such programs, the Executive's actual pay history as of the
Effective Date of Termination shall be used.
(h) The aggregate benefits accrued by the Executive as of the
Effective Date of Termination under any savings and
retirement plans sponsored by the Company shall be
distributed pursuant to the terms of the applicable plan.
(i) Compensation which has been deferred under any deferred
compensation plans sponsored by the Company, together with
all interest that has been credited with respect to any
such deferred compensation balances, shall be distributed
pursuant to the terms of the applicable plan if elected by
the Participant.
3.4 WAIVER OF BENEFITS UNDER COMPANY'S SEVERANCE BENEFIT PLAN.
Notwithstanding any provision to the contrary herein or in the Mitchell Energy &
Development Corp. Severance Benefit Plan, the Executive hereby knowingly,
voluntarily, and irrevocably waives any and all claims and rights he may have to
payments and benefits under such plan in the event he is entitled to Severance
Benefits hereunder.
3.5 BENEFITS CONTINGENT SOLELY UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control while the Executive is employed by the Company
(and without regard to whether a Qualifying Termination subsequently occurs),
for all purposes under the Company's long-term incentive plans (a) the Executive
shall be fully and immediately vested in all of his outstanding awards under
such plans, (b) the Executive shall be deemed to have terminated employment with
the Company by reason of retirement at the time of his termination of employment
with the Company regardless of the reason therefore, and (iii) the committee or
committees administering such plans shall be deemed to have consented to such
retirement. The Company hereby represents and warrants to the Executive that on
or before the Effective Date the Company has obtained the necessary consents of
the committee or committees administering the Company's long-term incentive
plans to the provisions of Section 3.3(f) and this Section 3.5.
3.6 TERMINATION FOR DISABILITY. If an Executive's employment is terminated
due to Disability, following a Change in Control, or prior to a Change in
Control as described in Section 3.2(a), the Executive shall receive his full
base salary and accrued vacation through the Effective Date of Termination, at
which point in time the Executive's benefits shall be determined in accordance
with the Company's disability, retirement, insurance, and other applicable plans
and programs then in effect. In the event the Executive's employment is
terminated due to Disability, the Executive shall not be entitled to the
Severance Benefits described in Section 3.3 unless otherwise provided under this
Agreement.
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3.7 TERMINATION FOR DEATH. If the Executive's employment is terminated by
reason of his death following a Change in Control, or prior to a Change in
Control as described in Section 3.2(a), the Company shall pay the Executive his
full base salary and accrued vacation through the Effective Date of Termination,
plus all other amounts to which the Executive is entitled under the Company's
retirement, survivor's benefits, insurance, and other applicable compensation
and benefit programs of the Company then in effect. In the event the Executive's
employment is terminated by reason of his death, the Executive shall not be
entitled to the Severance Benefits described in Section 3.3 unless otherwise
provided under this Agreement.
3.8 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON. If the
Executive's employment is terminated following a Change in Control, or prior to
a Change in Control as described in Section 3.2(a) either: (a) by the Company
for cause; or (b) by the Executive (other than for Good Reason, or under
circumstances giving rise to a Qualifying Termination described in Section
3.2(c) herein), the Company shall pay the Executive his full base salary and
accrued vacation through the Effective Date of Termination, plus all other
amounts to which the Executive is entitled under any compensation and benefit
plans of the Company, at the time such payments are due, and the Company shall
have no further obligations to the Executive under this Agreement.
3.9 NOTICE OF TERMINATION. Any termination of employment by the Company or
by the Executive shall be communicated by a Notice of Termination.
ARTICLE 4. FORM AND TIMING OF SEVERANCE BENEFITS
4.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.3(a), (b), (c), and (d) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from such
date.
4.2 WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Agreement all taxes as legally shall be required
(including, without limitation, any United States federal taxes and any other
state, city, or local taxes).
ARTICLE 5. EXCISE TAX TREATMENT
5.1 EXCISE TAX. In the event that a Change in Control occurs, and a
determination is made by the Company pursuant to Section 280G and 4999 of the
Code that a golden parachute excise tax is due, the benefits provided to the
Executive under this Agreement that are classified as "parachute payments" (as
such term is defined in Section 280G of the Code), shall be limited to the
amount just necessary to avoid the excise tax. However, this limitation shall be
applied if, and only if, such a limitation results in a greater net (of excise
tax) cash benefit to the Executive than he would receive had the benefits not
been capped and an excise tax been levied.
In the event the Internal Revenue Service subsequently adjusts the excise
tax computation herein described, the Company shall reimburse the Executive for
the full amount necessary to make the Executive whole (less any amounts received
by the Executive that he would not have received had the computation initially
been computed as subsequently adjusted), including the value of benefits that
were erroneously limited, the value of any overpaid excise tax, and any related
interest and/or penalties due to the Internal Revenue Service.
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ARTICLE 6. ESTABLISHMENT OF TRUST
As soon as practicable following the Effective Date, the Company shall
create a Trust (which shall be a grantor trust within the meaning of Sections
671-678 of the Code) for the benefit of the Executive and Beneficiaries, as
appropriate. The Trust shall have a Trustee as selected by the Company, and
shall have certain restrictions as to the Company's ability to amend the Trust
or cancel benefits provided thereunder. Any assets contained in the Trust shall,
at all times, be specifically subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency; such terms to be
specifically defined within the provisions of the Trust, along with the required
procedure for notifying the Trustee of any bankruptcy or insolvency.
At any time following the Effective Date, the Company may, but is not
obligated to, deposit assets in the Trust in an amount equal to or less than the
aggregate severance benefits which may become due to the Executive under
Sections 3.3(a), (b), (c), and (d) of this Agreement.
Upon a Change in Control, the Company shall deposit assets in such Trust
in an amount equal to the estimated aggregate Severance Benefits which may
become due to the Executive under Sections 3.3(a), (b), (c), (d) and 8.1 of this
Agreement. Upon a Change in Control, the Company shall also deposit assets in
the Trust in an amount equal to any benefits due under the Company's
nonqualified retirement plans and deferred compensation plans less any amount of
such benefits currently funded under any trust established under such plans.
ARTICLE 7. THE COMPANY'S PAYMENT OBLIGATION
7.1 GENERAL. Subject to Section 7.3, the Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
7.2 MITIGATION. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
7.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of this Agreement to the contrary, in the event the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Company may make any modifications to this Agreement necessary to preserve
the use of pooling of interests accounting.
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ARTICLE 8. LEGAL REMEDIES
8.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of mediation, arbitration or litigation,
prejudgment interest, and other expenses incurred in good faith by the Executive
as a result of the Company's refusal to provide the Severance Benefits or other
benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict (including
conflicts related to the calculation of parachute payments) between the parties
pertaining to this Agreement, provided, however, that no expenses shall be paid
if the arbitration panel or court rules that the Executive's claims are without
merit.
8.2 ALTERNATIVE DISPUTE RESOLUTION INCLUDING ARBITRATION. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the dispute
has not been resolved within thirty (30) days after the date a party hereto
provides notice of the dispute to the other party, either party may initiate
mediation of the dispute by sending the other party a written request that the
dispute be mediated. The parties shall mediate the dispute before a neutral,
third party mediator (if a mutually agreeable mediator cannot be identified, one
shall be appointed by the American Arbitration Association) selected by the
mutual agreement of both parties within thirty (30) days after the date of
written request for mediation. If the dispute has not been resolved within sixty
(60) days after the original notice of a dispute or within thirty (30) days
after the date of the request for mediation, whichever is the later, then either
party may initiate arbitration proceedings and the dispute shall then be
resolved as follows:
(i) Except as provided in Section 8.2(ii), any and all claims,
demands, cause of action, disputes, controversies, and
other matters in question arising out of or relating to
this Agreement, any provision hereof, the alleged breach
thereof, or in any way relating to the subject matter of
this Agreement, involving the Company, the Executive,
and/or their respective representatives, even though some
or all of such claims allegedly are extracontractual in
nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law,
whether provided by statute or the common law, for damages
or any other relief, shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by either party by
the providing to the other a written notice of arbitration
specifying the claims. Within thirty (30) days of the
notice of initiation of the arbitration procedure, each
party shall denominate one arbitrator. The two arbitrators
shall select a third arbitrator failing agreement on which
within thirty (30) days of the original notice, the parties
(or either or them) shall apply to the Senior Active United
States District Judge for the Southern District of Texas,
who shall appoint a third arbitrator. The three (3)
arbitrators, utilizing the Commercial Arbitration Rules of
the American Arbitration Association, shall by majority
vote within one hundred twenty (120) days of the selection
of the third arbitrator, resolve all disputes between the
parties. There shall be no transcript of the hearing before
the arbitrators. The arbitrators' decision shall be in
writing, but shall be as brief as possible. The arbitrators
shall not assign the reasons for their decision. The
arbitrators' decision shall be final and nonappealable to
the maximum extent permitted by law. Judgement upon any
award rendered in any such arbitration proceeding may be
entered by any federal
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or state court having jurisdiction. This agreement to
arbitrate shall be enforceable in either federal or state
court. The enforcement of this agreement to arbitrate and
all procedural aspects of this agreement to arbitrate,
including but not limited to, the construction and
interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of
the arbitrable issues, allegations of waiver, delay or
defenses to arbitrability, and the rules governing the
conduct of the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration Act and shall
be decided by the arbitrators. In deciding the substance of
any such claims, the arbitrators shall apply the
substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the
application of some other State's law); provided, however,
it is expressly agreed that the arbitrators shall have no
authority to award treble, exemplary, or punitive damages
under any circumstances regardless of whether such damages
may be available under Texas law, the parties hereby
waiving their right, if any, to recover treble, exemplary,
or punitive damages in connection with any such claims.
This agreement to arbitrate is not applicable to disputes
between or among the Company and the Executive based upon
or arising out of any other agreement, benefit plan, or
program heretofore or hereafter entered into between the
Executive and the Company or its affiliates.
Notwithstanding the preceding provisions of this Section
8.2(i), the Company and the Executive may agree to use one
arbitrator rather than three arbitrators as provided above,
and, in the event of any such agreement, the one hundred
twenty (120) day period referred to in the sixth sentence
of this Section 8.2(i) shall begin on the date of the
parties' selection of such one arbitrator.
(ii) Notwithstanding the agreement to arbitrate contained in
Section 8.2(i), in the event that either party wishes to
seek a temporary restraining order, a preliminary or
temporary injunction, or other injunctive relief in
connection with any or all such claims, demands, cause of
action, disputes, controversies, and other matters in
question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement, involving
the Company, the Executive, and/or their respective
representatives, even though some or all of such claims
allegedly are extra contractual in nature, whether such
claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief,
each party shall have the right to pursue such injunctive
relief in court, rather than by arbitration. The parties
agree that such action for a temporary restraining order, a
preliminary or temporary injunction, or other injunctive
relief may be brought in the State or federal courts
residing in Houston, Texas, or in any other forum in which
jurisdiction is appropriate.
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ARTICLE 9. SUCCESSORS AND ASSIGNMENT
9.1 SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The date on
which any such succession becomes effective shall be deemed to be the date of
the Change in Control.
9.2 ASSIGNMENT BY THE EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary. If the Executive has not named a Beneficiary, then such
amounts shall be paid to the Executive's devisee, legatee, or other designee, or
if there is no such designee, to the Executive's estate. Executive shall not
have any right to pledge, hypothecate, anticipate, or assign this Agreement or
the rights hereunder, except upon his death as described in this Section 9.2.
ARTICLE 10. MISCELLANEOUS
10.1 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will," and may be terminated by either the Executive or
the Company at any time, subject to applicable law.
10.2 BENEFICIARIES. The Executive may designate one or more persons or entities
as the primary and/or contingent Beneficiaries of any Severance Benefits owing
to the Executive under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Company. The Executive may make or change such
designations at any time.
10.3 SEVERABILITY. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
10.4 MODIFICATION. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company,
or by the respective parties' legal representatives and successors.
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10.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in all
matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of _________________, 1998.
Mitchell Energy & Development Corp. Executive:
By:
-------------------------------- ------------------------------------
W. D. Stevens
Its: President and Chief Operating Officer
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EXHIBIT 10(l)
EXECUTIVE CHANGE-IN-CONTROL
SEVERANCE AGREEMENT FOR
GEORGE P. MITCHELL
Mitchell Energy & Development Corp.
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
====================================================================================================================
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 2
Article 3. Severance Benefits 3
Article 4. Form and Timing of Severance Benefits 6
Article 5. Excise Tax Treatment 6
Article 6. Establishment of Trust 7
Article 7. The Company's Payment Obligation 8
Article 8. Legal Remedies 8
Article 9. Successors and Assignment 10
Article 10. Miscellaneous 10
</TABLE>
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the ___ day of ________,
1998, by and between Mitchell Energy & Development Corp. (hereinafter referred
to as the "Company") and George P. Mitchell (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company has approved the Company
entering into change-in-control severance agreements with certain key executives
of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control arise, the Board
believes it is imperative that the Company and the Board should be able to rely
upon the Executive to continue in his position, and that the Company should be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its shareholders without concern that the
Executive might be distracted by the personal uncertainties and risks created by
the possibility of a Change in Control;
WHEREAS, should the possibility of a Change in Control arise, in addition
to his regular duties, the Executive may be called upon to assist in the
assessment of such possible Change in Control, advise management and the Board
as to whether such Change in Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control,
and to induce the Executive to remain in the employ of the Company, and for
other good and valuable consideration, the Company and the Executive agree as
follows:
ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE
This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years. However, at the end of such three (3) year
period and, if extended, at the end of each additional year thereafter, the term
of this Agreement shall be extended automatically for one (1) additional year,
unless the Company delivers written notice six (6) months prior to the end of
such term, or extended term, to the Executive, that the Agreement will not be
extended. In such case, the Agreement will terminate at the end of the term, or
extended term, then in progress.
Notwithstanding the preceding, in the event a Change in Control occurs
during the original or any extended term, this Agreement will remain in effect
for a period of two (2) years after such Change in Control, and if within said
two (2) years the contingency factors occur which would entitle the Executive to
the Severance Benefits as provided herein, this Agreement shall remain in effect
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to the Executive.
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ARTICLE 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.
2.1 "ANNUAL BONUS" means the average of the actual annual bonus amounts
awarded to the Executive (regardless of when such award is paid or payable)
under the Company's annual bonus plan then in effect for the three (3) fiscal
years that have ended immediately prior to the fiscal year during which the
Executive's termination of employment occurs.
2.2 "BASE SALARY" means the greater of (1) the Executive's annual base
salary in effect immediately prior to the Change in Control, (2) the Executive's
annual base salary in effect immediately prior to the Executive's termination of
employment, or (3) the Executive's annual base salary in effect sixty (60) days
prior to the Executive's termination of employment.
2.3 "BENEFICIARY" means the persons or entities designated or deemed
designated by the Executive pursuant to Section 10.2 herein.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CAUSE" means (a) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his duties, and after the Executive has failed to resume
substantial performance of his duties on a continuous basis within thirty (30)
calendar days of receiving such demand; (b) the Executive's willfully engaging
in conduct (other than conduct covered under (a) above) which is demonstrably
and materially injurious to the Company, monetarily or otherwise; or (c) the
Executive's having been convicted of a felony. For purposes of this
subparagraph, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Company.
2.6 "CHANGE IN CONTROL" means (i) the Company shall not be the surviving
entity in any merger, consolidation, or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly owned subsidiary of
the Company); (ii) the Company sells, leases, or exchanges all or substantially
all of its assets to any other person or entity (other than a wholly owned
subsidiary of the Company); (iii) the Company is dissolved or liquidated; (iv)
any person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than fifty percent (50%) of the outstanding
shares of the Company's voting stock (based upon voting power), other than as a
result of the death or incapacity of George P. Mitchell; or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.7 "CODE" means the United States Internal Revenue Code of 1986, as
amended, and any successors thereto.
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2.8 "COMPANY" means Mitchell Energy & Development Corp., a Texas
corporation, or any successor thereto as provided in Article 9 herein.
2.9 "DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Executive was employed when such disability commenced.
2.10 "EFFECTIVE DATE" means the date of this Agreement set forth above.
2.11 "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.
2.12 "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
2.13 "NOTICE OF TERMINATION" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
2.14 "QUALIFYING TERMINATION" means any of the events described in Section
3.2 herein, the occurrence of which triggers the payment of Severance Benefits
hereunder.
2.15 "RETENTION PERIOD" means the period of time beginning on the date of
a Change in Control and ending on the date two (2) years following the Change in
Control.
2.16 "SEVERANCE BENEFITS" means the payments and benefits provided for in
Section 3.3 herein.
2.17 "TRUST" means a grantor trust created pursuant to Article 6.
ARTICLE 3. SEVERANCE AND OTHER BENEFITS
3.1 RIGHT TO SEVERANCE AND OTHER BENEFITS. The Executive shall be entitled
to receive from the Company Severance Benefits, as described in Section 3.3
herein, if there has been a Change in Control and if a Qualifying Termination
has occurred. Unless otherwise provided under this Agreement or another
compensation plan, program, or written agreement, the Executive shall not be
entitled to receive Severance Benefits if he is terminated for Cause or his
employment with the Company ends due to death or Disability. Solely upon a
Change in Control, the Executive shall be entitled to the benefits provided in
Section 3.5 hereof.
3.2 QUALIFYING TERMINATION. The occurrence of any one or more of the
following events shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) A termination of the Executive's employment during the
Retention Period for any reason whatsoever other than by
the Company for Cause or by reason of the Executive's death
or Disability; or
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<PAGE> 6
(b) An involuntary termination of the Executive's employment
for reasons other than by the Company for Cause or by
reason of the Executive's death or Disability (1) within
six (6) months prior to a Change in Control; or (2) prior
to the date of a Change in Control but the Executive
reasonably demonstrates that such termination (a) was at
the request of a third party who has indicated an intention
or taken steps reasonably calculated to effect a Change in
Control and who effectuates such Change in Control; or (b)
otherwise arose in connection with, or in anticipation of,
a Change in Control which has been threatened or proposed
and which actually occurs.
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event the Executive becomes
entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2
herein, the Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to the Executive's unpaid base salary,
accrued vacation pay, and earned but not taken vacation pay
through the Effective Date of Termination.
(b) An amount equal to one and one half (1 1/2) times the
Executive's Base Salary.
(c) An amount equal to one and one half (1 1/2) times the
Executive's Annual Bonus.
(d) The Annual Bonus multiplied by a fraction, the numerator of
which is the number of full completed days in the bonus
plan year through the Effective Date of Termination, and
the denominator of which is three hundred sixty-five (365).
This payment will be in lieu of any other payment to be
made to the Executive under the annual bonus plan for the
respective plan year.
(e) A continuation of the welfare benefits of health care, life
and accidental death and dismemberment, and disability
insurance coverage for twenty-four (24) months after the
Effective Date of Termination. These benefits shall be
provided to the Executive at the same premium cost, and at
the same coverage level, as in effect as of the Executive's
Effective Date of Termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, or for management employees with
respect to supplemental benefits, the cost and/or coverage
level, likewise, shall change for the Executive in a
corresponding manner.
(f) Solely for purposes of the Company's long-term incentive
plans, (i) the Executive shall be fully and immediately
vested in all of his outstanding awards under such plans,
(ii) the Executive shall be deemed to have terminated
employment with the Company by reason of retirement, and
(iii) the committee or committees administering such plans
shall be deemed to have consented to such retirement.
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<PAGE> 7
(g) For purposes of the Company's nonqualified retirement plans
and retiree medical plans, benefits shall be calculated
under the assumption that the Executive's employment
continued following the Effective Date of Termination for
three (3) full years (i.e., three (3) additional years of
age and service credits shall be added); provided, however,
that for purposes of determining "final average pay" under
such programs, the Executive's actual pay history as of the
Effective Date of Termination shall be used.
(h) The aggregate benefits accrued by the Executive as of the
Effective Date of Termination under any savings and
retirement plans sponsored by the Company shall be
distributed pursuant to the terms of the applicable plan.
(i) Compensation which has been deferred under any deferred
compensation plans sponsored by the Company, together with
all interest that has been credited with respect to any
such deferred compensation balances, shall be distributed
pursuant to the terms of the applicable plan if elected by
the Participant.
3.4 WAIVER OF BENEFITS UNDER COMPANY'S SEVERANCE BENEFIT PLAN.
Notwithstanding any provision to the contrary herein or in the Mitchell Energy &
Development Corp. Severance Benefit Plan, the Executive hereby knowingly,
voluntarily, and irrevocably waives any and all claims and rights he may have to
payments and benefits under such plan in the event he is entitled to Severance
Benefits hereunder.
3.5 BENEFITS CONTINGENT SOLELY UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control while the Executive is employed by the Company
(and without regard to whether a Qualifying Termination subsequently occurs),
for all purposes under the Company's long-term incentive plans (a) the Executive
shall be fully and immediately vested in all of his outstanding awards under
such plans, (b) the Executive shall be deemed to have terminated employment with
the Company by reason of retirement at the time of his termination of employment
with the Company regardless of the reason therefore, and (iii) the committee or
committees administering such plans shall be deemed to have consented to such
retirement. The Company hereby represents and warrants to the Executive that on
or before the Effective Date the Company has obtained the necessary consents of
the committee or committees administering the Company's long-term incentive
plans to the provisions of Section 3.3(f) and this Section 3.5.
3.6 TERMINATION FOR DISABILITY. If an Executive's employment is terminated
due to Disability, following a Change in Control, or prior to a Change in
Control as described in Section 3.2(b) hereof, the Executive shall receive his
full base salary and accrued vacation through the Effective Date of Termination,
at which point in time the Executive's benefits shall be determined in
accordance with the Company's disability, retirement, insurance, and other
applicable plans and programs then in effect. In the event the Executive's
employment is terminated due to Disability, the Executive shall not be entitled
to the Severance Benefits described in Section 3.3 unless otherwise provided
under this Agreement.
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<PAGE> 8
3.7 TERMINATION FOR DEATH. If the Executive's employment is terminated by
reason of his death following a Change in Control, or prior to a Change in
Control as described in Section 3.2(b) hereof, the Company shall pay the
Executive his full base salary and accrued vacation through the Effective Date
of Termination, plus all other amounts, to which the Executive is entitled under
the Company's retirement, survivor's benefits, insurance, and other applicable
compensation and benefit programs of the Company then in effect. In the event
the Executive's employment is terminated by reason of his death, the Executive
shall not be entitled to the Severance Benefits described in Section 3.3 unless
otherwise provided under this Agreement.
3.8 TERMINATION FOR CAUSE. If the Executive's employment is terminated by
the Company for Cause following a Change in Control or prior to a Change in
Control as described in Section 3.2(b) hereof, the Company shall pay the
Executive his full base salary and accrued vacation through the Effective Date
of Termination, plus all other amounts to which the Executive is entitled under
any compensation and benefit plans of the Company, at the time such payments are
due, and the Company shall have no further obligations to the Executive under
this Agreement.
3.9 NOTICE OF TERMINATION. Any termination of employment by the Company or
by the Executive shall be communicated by a Notice of Termination.
ARTICLE 4. FORM AND TIMING OF SEVERANCE BENEFITS
4.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.3(a), (b), (c), and (d) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from such
date.
4.2 WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Agreement all taxes as legally shall be required
(including, without limitation, any United States federal taxes and any other
state, city, or local taxes).
ARTICLE 5. EXCISE TAX TREATMENT
5.1 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with, or plan of the Company (in
the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive, in cash, an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 5.1 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Executive as soon as practical following the Effective Date of
Termination, but in no event beyond thirty (30) days from such date.
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<PAGE> 9
5.2 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any payments or benefits received or to be received by the
Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, or with any person (which
shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as
defined in Section 13(d) therein) whose actions result in a
Change in Control or any person affiliated with the Company
or such persons) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel as
supported by the Company's independent auditors and
acceptable to the Executive, such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Total Payments; or (ii) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment
or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Effective Date of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
5.3 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 5.2 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Company.
ARTICLE 6. ESTABLISHMENT OF TRUST
As soon as practicable following the Effective Date, the Company shall
create a Trust (which shall be a grantor trust within the meaning of Sections
671-678 of the Code) for the benefit of the Executive and Beneficiaries, as
appropriate. The Trust shall have a Trustee as selected by the Company, and
shall have certain restrictions as to the Company's ability to amend the Trust
or cancel
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<PAGE> 10
benefits provided thereunder. Any assets contained in the Trust shall, at all
times, be specifically subject to the claims of the Company's general creditors
in the event of bankruptcy or insolvency; such terms to be specifically defined
within the provisions of the Trust, along with the required procedure for
notifying the Trustee of any bankruptcy or insolvency.
At any time following the Effective Date, the Company may, but is not
obligated to, deposit assets in the Trust in an amount equal to or less than the
aggregate severance benefits which may become due to the Executive under
Sections 3.3(a), (b), (c), (d), and 5.1 of this Agreement.
Upon a Change in Control, the Company shall deposit assets in such Trust
in an amount equal to the estimated aggregate Severance Benefits which may
become due to the Executive under Sections 3.3(a), (b), (c), (d), 5.1, and 8.1
of this Agreement. Upon a Change in Control, the Company shall also deposit
assets in the Trust in an amount equal to any benefits due under the Company's
nonqualified retirement plans and deferred compensation plans less any amount of
such benefits currently funded under any trust established under such plans.
ARTICLE 7. THE COMPANY'S PAYMENT OBLIGATION
7.1 GENERAL. Subject to Section 7.3, the Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
7.2 MITIGATION. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
7.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of this Agreement to the contrary, in the event the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Company may make any modifications to this Agreement necessary to preserve
the use of pooling of interests accounting.
ARTICLE 8. LEGAL REMEDIES
8.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of mediation, arbitration or litigation,
prejudgment interest, and other expenses incurred in good faith by the Executive
as a result of the Company's refusal to provide the Severance Benefits or other
benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict (including
conflicts related to the calculation of parachute payments) between the parties
pertaining to this Agreement, provided, however, that no expenses shall be paid
if the arbitration panel or court rules that the Executive's claims are without
merit.
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8.2 ALTERNATIVE DISPUTE RESOLUTION INCLUDING ARBITRATION. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the dispute
has not been resolved within thirty (30) days after the date a party hereto
provides notice of the dispute to the other party, either party may initiate
mediation of the dispute by sending the other party a written request that the
dispute be mediated. The parties shall mediate the dispute before a neutral,
third party mediator (if a mutually agreeable mediator cannot be identified, one
shall be appointed by the American Arbitration Association) selected by the
mutual agreement of both parties within thirty (30) days after the date of
written request for mediation. If the dispute has not been resolved within sixty
(60) days after the original notice of a dispute or within thirty (30) days
after the date of the request for mediation, whichever is the later, then either
party may initiate arbitration proceedings and the dispute shall then be
resolved as follows:
(i) Except as provided in Section 8.2(ii), any and all claims,
demands, cause of action, disputes, controversies, and
other matters in question arising out of or relating to
this Agreement, any provision hereof, the alleged breach
thereof, or in any way relating to the subject matter of
this Agreement, involving the Company, the Executive,
and/or their respective representatives, even though some
or all of such claims allegedly are extracontractual in
nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law,
whether provided by statute or the common law, for damages
or any other relief, shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by either party by
the providing to the other a written notice of arbitration
specifying the claims. Within thirty (30) days of the
notice of initiation of the arbitration procedure, each
party shall denominate one arbitrator. The two arbitrators
shall select a third arbitrator failing agreement on which
within thirty (30) days of the original notice, the parties
(or either or them) shall apply to the Senior Active United
States District Judge for the Southern District of Texas,
who shall appoint a third arbitrator. The three (3)
arbitrators, utilizing the Commercial Arbitration Rules of
the American Arbitration Association, shall by majority
vote within one hundred twenty (120) days of the selection
of the third arbitrator, resolve all disputes between the
parties. There shall be no transcript of the hearing before
the arbitrators. The arbitrators' decision shall be in
writing, but shall be as brief as possible. The arbitrators
shall not assign the reasons for their decision. The
arbitrators' decision shall be final and nonappealable to
the maximum extent permitted by law. Judgement upon any
award rendered in any such arbitration proceeding may be
entered by any federal or state court having jurisdiction.
This agreement to arbitrate shall be enforceable in either
federal or state court. The enforcement of this agreement
to arbitrate and all procedural aspects of this agreement
to arbitrate, including but not limited to, the
construction and interpretation of this agreement to
arbitrate, the issues subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues,
allegations of waiver, delay or defenses to arbitrability,
and the rules governing the conduct of the arbitration,
shall be governed by and construed pursuant to the Federal
Arbitration Act and shall be decided by the arbitrators. In
deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of
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<PAGE> 12
Texas (excluding Texas choice-of-law principles that might
call for the application of some other State's law);
provided, however, it is expressly agreed that the
arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances
regardless of whether such damages may be available under
Texas law, the parties hereby waiving their right, if any,
to recover treble, exemplary, or punitive damages in
connection with any such claims. This agreement to
arbitrate is not applicable to disputes between or among
the Company and the Executive based upon or arising out of
any other agreement, benefit plan, or program heretofore or
hereafter entered into between the Executive and the
Company or its affiliates. Notwithstanding the preceding
provisions of this Section 8.2(i), the Company and the
Executive may agree to use one arbitrator rather than three
arbitrators as provided above, and, in the event of any
such agreement, the one hundred twenty (120) day period
referred to in the sixth sentence of this Section 8.2(i)
shall begin on the date of the parties' selection of such
one arbitrator.
(ii) Notwithstanding the agreement to arbitrate contained in
Section 8.2(i), in the event that either party wishes to
seek a temporary restraining order, a preliminary or
temporary injunction, or other injunctive relief in
connection with any or all such claims, demands, cause of
action, disputes, controversies, and other matters in
question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement, involving
the Company, the Executive, and/or their respective
representatives, even though some or all of such claims
allegedly are extracontractual in nature, whether such
claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief,
each party shall have the right to pursue such injunctive
relief in court, rather than by arbitration. The parties
agree that such action for a temporary restraining order, a
preliminary or temporary injunction, or other injunctive
relief may be brought in the State or federal courts
residing in Houston, Texas, or in any other forum in which
jurisdiction is appropriate.
ARTICLE 9. SUCCESSORS AND ASSIGNMENT
9.1 SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The date on
which any such succession becomes effective shall be deemed to be the date of
the Change in Control.
9.2 ASSIGNMENT BY THE EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary. If the Executive has not named a Beneficiary, then such
amounts shall be paid to the
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Executive's devisee, legatee, or other designee, or if there is no such
designee, to the Executive's estate. Executive shall not have any right to
pledge, hypothecate, anticipate, or assign this Agreement or the rights
hereunder, except upon his death as described in this Section 9.2.
ARTICLE 10. MISCELLANEOUS
10.1 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will," and may be terminated by either the Executive or
the Company at any time, subject to applicable law.
10.2 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Company. The Executive may
make or change such designations at any time.
10.3 SEVERABILITY. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
10.4 MODIFICATION. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company,
or by the respective parties' legal representatives and successors.
10.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in all
matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of _________________, 1998.
Mitchell Energy & Development Corp. Executive:
By:
-------------------------------- -------------------------------------
W. D. Stephens
Its: President and Chief Operating Officer
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<PAGE> 1
EXHIBIT 10(m)
EXECUTIVE CHANGE-IN-CONTROL
SEVERANCE AGREEMENT FOR
WILLIAM D. STEVENS
Mitchell Energy & Development Corp.
<PAGE> 2
CONTENTS
===============================================================================
<TABLE>
<S> <C>
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 2
Article 3. Severance Benefits 3
Article 4. Form and Timing of Severance Benefits 6
Article 5. Excise Tax Treatment 6
Article 6. Establishment of Trust 7
Article 7. The Company's Payment Obligation 8
Article 8. Legal Remedies 8
Article 9. Successors and Assignment 10
Article 10. Miscellaneous 10
</TABLE>
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the ___ day of ________,
1998, by and between Mitchell Energy & Development Corp. (hereinafter referred
to as the "Company") and William D. Stevens (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company has approved the Company
entering into change-in-control severance agreements with certain key
executives of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control arise, the Board
believes it is imperative that the Company and the Board should be able to rely
upon the Executive to continue in his position, and that the Company should be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its shareholders without concern that the
Executive might be distracted by the personal uncertainties and risks created
by the possibility of a Change in Control;
WHEREAS, should the possibility of a Change in Control arise, in addition
to his regular duties, the Executive may be called upon to assist in the
assessment of such possible Change in Control, advise management and the Board
as to whether such Change in Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control,
and to induce the Executive to remain in the employ of the Company, and for
other good and valuable consideration, the Company and the Executive agree as
follows:
ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE
This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years. However, at the end of such three (3) year
period and, if extended, at the end of each additional year thereafter, the
term of this Agreement shall be extended automatically for one (1) additional
year, unless the Company delivers written notice six (6) months prior to the
end of such term, or extended term, to the Executive, that the Agreement will
not be extended. In such case, the Agreement will terminate at the end of the
term, or extended term, then in progress.
Notwithstanding the preceding, in the event a Change in Control occurs
during the original or any extended term, this Agreement will remain in effect
for a period of two (2) years after such Change in Control, and if within said
two (2) years the contingency factors occur which would entitle the Executive
to the Severance Benefits as provided herein, this Agreement shall remain in
effect until all obligations of the Company hereunder have been fulfilled, and
until all benefits required hereunder have been paid to the Executive.
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ARTICLE 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.
2.1 "ANNUAL BONUS" means the average of the actual annual bonus amounts
awarded to the Executive (regardless of when such award is paid or payable)
under the Company's annual bonus plan then in effect for the three (3) fiscal
years that have ended immediately prior to the fiscal year during which the
Executive's termination of employment occurs.
2.2 "BASE SALARY" means the greater of (1) the Executive's annual base
salary in effect immediately prior to the Change in Control, (2) the
Executive's annual base salary in effect immediately prior to the Executive's
termination of employment, or (3) the Executive's annual base salary in effect
sixty (60) days prior to the Executive's termination of employment.
2.3 "BENEFICIARY" means the persons or entities designated or deemed
designated by the Executive pursuant to Section 10.2 herein.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CAUSE" means (a) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his duties, and after the Executive has failed to resume
substantial performance of his duties on a continuous basis within thirty (30)
calendar days of receiving such demand; (b) the Executive's willfully engaging
in conduct (other than conduct covered under (a) above) which is demonstrably
and materially injurious to the Company, monetarily or otherwise; or (c) the
Executive's having been convicted of a felony. For purposes of this
subparagraph, no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Company.
2.6 "CHANGE IN CONTROL" means (i) the Company shall not be the surviving
entity in any merger, consolidation, or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly owned subsidiary of
the Company); (ii) the Company sells, leases, or exchanges all or substantially
all of its assets to any other person or entity (other than a wholly owned
subsidiary of the Company); (iii) the Company is dissolved or liquidated; (iv)
any person or entity, including a "group" as contemplated by Section 13(d)(3)
of the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than fifty percent (50%) of the outstanding
shares of the Company's voting stock (based upon voting power), other than as a
result of the death or incapacity of George P. Mitchell; or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.7 "CODE" means the United States Internal Revenue Code of 1986, as
amended, and any successors thereto.
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2.8 "COMPANY" means Mitchell Energy & Development Corp., a Texas
corporation, or any successor thereto as provided in Article 9 herein.
2.9 "DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Executive was employed when such disability commenced.
2.10 "EFFECTIVE DATE" means the date of this Agreement set forth above.
2.11 "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.
2.12 "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
2.13 "NOTICE OF TERMINATION" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
2.14 "QUALIFYING TERMINATION" means any of the events described in Section
3.2 herein, the occurrence of which triggers the payment of Severance Benefits
hereunder.
2.15 "RETENTION PERIOD" means the period of time beginning on the date of
a Change in Control and ending on the date two (2) years following the Change
in Control.
2.16 "SEVERANCE BENEFITS" means the payments and benefits provided for in
Section 3.3 herein.
2.17 "TRUST" means a grantor trust created pursuant to Article 6.
ARTICLE 3. SEVERANCE AND OTHER BENEFITS
3.1 RIGHT TO SEVERANCE AND OTHER BENEFITS. The Executive shall be entitled
to receive from the Company Severance Benefits, as described in Section 3.3
herein, if there has been a Change in Control and if a Qualifying Termination
has occurred. Unless otherwise provided under this Agreement or another
compensation plan, program, or written agreement, the Executive shall not be
entitled to receive Severance Benefits if he is terminated for Cause or his
employment with the Company ends due to death or Disability. Solely upon a
Change in Control, the Executive shall be entitled to the benefits provided in
Section 3.5 hereof.
3.2 QUALIFYING TERMINATION. The occurrence of any one or more of the
following events shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) A termination of the Executive's employment during the Retention
Period for any reason whatsoever other than by the Company for
Cause or by reason of the Executive's death or Disability; or
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<PAGE> 6
(b) An involuntary termination of the Executive's employment for
reasons other than by the Company for Cause or by reason of the
Executive's death or Disability (1) within six (6) months prior
to a Change in Control; or (2) prior to the date of a Change in
Control but the Executive reasonably demonstrates that such
termination (a) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates such Change in
Control; or (b) otherwise arose in connection with, or in
anticipation of, a Change in Control which has been threatened
or proposed and which actually occurs.
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event the Executive becomes
entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2
herein, the Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to the Executive's unpaid base salary, accrued
vacation pay, and earned but not taken vacation pay through the
Effective Date of Termination.
(b) An amount equal to three (3) times the Executive's Base Salary.
(c) An amount equal to three (3) times the Executive's Annual Bonus.
(d) The Annual Bonus multiplied by a fraction, the numerator of
which is the number of full completed days in the bonus plan
year through the Effective Date of Termination, and the
denominator of which is three hundred sixty-five (365). This
payment will be in lieu of any other payment to be made to the
Executive under the annual bonus plan for the respective plan
year.
(e) A continuation of the welfare benefits of health care, life and
accidental death and dismemberment, and disability insurance
coverage for twenty-four (24) months after the Effective Date of
Termination. These benefits shall be provided to the Executive
at the same premium cost, and at the same coverage level, as in
effect as of the Executive's Effective Date of Termination.
However, in the event the premium cost and/or level of coverage
shall change for all employees of the Company, or for management
employees with respect to supplemental benefits, the cost and/or
coverage level, likewise, shall change for the Executive in a
corresponding manner.
(f) Solely for purposes of the Company's long-term incentive plans,
(i) the Executive shall be fully and immediately vested in all
of his outstanding awards under such plans, (ii) the Executive
shall be deemed to have terminated employment with the Company
by reason of retirement, and (iii) the committee or committees
administering such plans shall be deemed to have consented to
such retirement.
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<PAGE> 7
(g) For purposes of the Company's nonqualified retirement plans and
retiree medical plans, benefits shall be calculated under the
assumption that the Executive's employment continued following
the Effective Date of Termination for three (3) full years
(i.e., three (3) additional years of age and service credits
shall be added); provided, however, that for purposes of
determining "final average pay" under such programs, the
Executive's actual pay history as of the Effective Date of
Termination shall be used.
(h) The aggregate benefits accrued by the Executive as of the
Effective Date of Termination under any savings and retirement
plans sponsored by the Company shall be distributed pursuant to
the terms of the applicable plan.
(i) Compensation which has been deferred under any deferred
compensation plans sponsored by the Company, together with all
interest that has been credited with respect to any such
deferred compensation balances, shall be distributed pursuant to
the terms of the applicable plan if elected by the Participant.
3.4 WAIVER OF BENEFITS UNDER COMPANY'S SEVERANCE BENEFIT PLAN.
Notwithstanding any provision to the contrary herein or in the Mitchell Energy
& Development Corp. Severance Benefit Plan, the Executive hereby knowingly,
voluntarily, and irrevocably waives any and all claims and rights he may have
to payments and benefits under such plan in the event he is entitled to
Severance Benefits hereunder.
3.5 BENEFITS CONTINGENT SOLELY UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control while the Executive is employed by the
Company (and without regard to whether a Qualifying Termination subsequently
occurs), for all purposes under the Company's long-term incentive plans (a) the
Executive shall be fully and immediately vested in all of his outstanding
awards under such plans, (b) the Executive shall be deemed to have terminated
employment with the Company by reason of retirement at the time of his
termination of employment with the Company regardless of the reason therefore,
and (iii) the committee or committees administering such plans shall be deemed
to have consented to such retirement. The Company hereby represents and
warrants to the Executive that on or before the Effective Date the Company has
obtained the necessary consents of the committee or committees administering
the Company's long-term incentive plans to the provisions of Section 3.3(f) and
this Section 3.5.
3.6 TERMINATION FOR DISABILITY. If an Executive's employment is terminated
due to Disability, following a Change in Control, or prior to a Change in
Control as described in Section 3.2(b) hereof, the Executive shall receive his
full base salary and accrued vacation through the Effective Date of
Termination, at which point in time the Executive's benefits shall be
determined in accordance with the Company's disability, retirement, insurance,
and other applicable plans and programs then in effect. In the event the
Executive's employment is terminated due to Disability, the Executive shall not
be entitled to the Severance Benefits described in Section 3.3 unless otherwise
provided under this Agreement.
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3.7 TERMINATION FOR DEATH. If the Executive's employment is terminated by
reason of his death following a Change in Control, or prior to a Change in
Control as described in Section 3.2(b) hereof, the Company shall pay the
Executive his full base salary and accrued vacation through the Effective Date
of Termination, plus all other amounts, to which the Executive is entitled
under the Company's retirement, survivor's benefits, insurance, and other
applicable compensation and benefit programs of the Company then in effect. In
the event the Executive's employment is terminated by reason of his death, the
Executive shall not be entitled to the Severance Benefits described in Section
3.3 unless otherwise provided under this Agreement.
3.8 TERMINATION FOR CAUSE. If the Executive's employment is terminated by
the Company for Cause following a Change in Control or prior to a Change in
Control as described in Section 3.2(b) hereof, the Company shall pay the
Executive his full base salary and accrued vacation through the Effective Date
of Termination, plus all other amounts to which the Executive is entitled under
any compensation and benefit plans of the Company, at the time such payments
are due, and the Company shall have no further obligations to the Executive
under this Agreement.
3.9 NOTICE OF TERMINATION. Any termination of employment by the Company or
by the Executive shall be communicated by a Notice of Termination.
ARTICLE 4. FORM AND TIMING OF SEVERANCE BENEFITS
4.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.3(a), (b), (c), and (d) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from
such date.
4.2 WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Agreement all taxes as legally shall be required
(including, without limitation, any United States federal taxes and any other
state, city, or local taxes).
ARTICLE 5. EXCISE TAX TREATMENT
5.1 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with, or plan of the Company (in
the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive, in cash, an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 5.1 (including FICA and
FUTA), shall be equal to the Total Payments. Such payment shall be made by the
Company to the Executive as soon as practical following the Effective Date of
Termination, but in no event beyond thirty (30) days from such date.
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5.2 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any payments or benefits received or to be received by the
Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Company, or with any person (which shall have
the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control or
any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) shall be treated as
subject to the Excise Tax, unless in the opinion of tax counsel
as supported by the Company's independent auditors and
acceptable to the Executive, such other payments or benefits (in
whole or in part) do not constitute parachute payments, or
unless such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of
the Code, or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of: (i)
the total amount of the Total Payments; or (ii) the amount of
excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Effective Date of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
5.3 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 5.2 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Company.
ARTICLE 6. ESTABLISHMENT OF TRUST
As soon as practicable following the Effective Date, the Company shall
create a Trust (which shall be a grantor trust within the meaning of Sections
671-678 of the Code) for the benefit of the Executive and Beneficiaries, as
appropriate. The Trust shall have a Trustee as selected by the Company, and
shall have certain restrictions as to the Company's ability to amend the Trust
or cancel
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benefits provided thereunder. Any assets contained in the Trust shall, at all
times, be specifically subject to the claims of the Company's general creditors
in the event of bankruptcy or insolvency; such terms to be specifically defined
within the provisions of the Trust, along with the required procedure for
notifying the Trustee of any bankruptcy or insolvency.
At any time following the Effective Date, the Company may, but is not
obligated to, deposit assets in the Trust in an amount equal to or less than
the aggregate severance benefits which may become due to the Executive under
Sections 3.3(a), (b), (c), (d), and 5.1 of this Agreement.
Upon a Change in Control, the Company shall deposit assets in such Trust
in an amount equal to the estimated aggregate Severance Benefits which may
become due to the Executive under Sections 3.3(a), (b), (c), (d), 5.1, and 8.1
of this Agreement. Upon a Change in Control, the Company shall also deposit
assets in the Trust in an amount equal to any benefits due under the Company's
nonqualified retirement plans and deferred compensation plans less any amount
of such benefits currently funded under any trust established under such plans.
ARTICLE 7. THE COMPANY'S PAYMENT OBLIGATION
7.1 GENERAL. Subject to Section 7.3, the Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by the Company shall be final,
and the Company shall not seek to recover all or any part of such payment from
the Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
7.2 MITIGATION. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
7.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of this Agreement to the contrary, in the event the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Company may make any modifications to this Agreement necessary to preserve
the use of pooling of interests accounting.
ARTICLE 8. LEGAL REMEDIES
8.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of mediation, arbitration or litigation,
prejudgment interest, and other expenses incurred in good faith by the
Executive as a result of the Company's refusal to provide the Severance
Benefits or other benefits to which the Executive becomes entitled under this
Agreement, or as a result of the Company's contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict (including conflicts related to the calculation of parachute payments)
between the parties pertaining to this Agreement, provided, however, that no
expenses shall be paid if the arbitration panel or court rules that the
Executive's claims are without merit.
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8.2 ALTERNATIVE DISPUTE RESOLUTION INCLUDING ARBITRATION. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the
dispute has not been resolved within thirty (30) days after the date a party
hereto provides notice of the dispute to the other party, either party may
initiate mediation of the dispute by sending the other party a written request
that the dispute be mediated. The parties shall mediate the dispute before a
neutral, third party mediator (if a mutually agreeable mediator cannot be
identified, one shall be appointed by the American Arbitration Association)
selected by the mutual agreement of both parties within thirty (30) days after
the date of written request for mediation. If the dispute has not been resolved
within sixty (60) days after the original notice of a dispute or within thirty
(30) days after the date of the request for mediation, whichever is the later,
then either party may initiate arbitration proceedings and the dispute shall
then be resolved as follows:
(i) Except as provided in Section 8.2(ii), any and all claims,
demands, cause of action, disputes, controversies, and other
matters in question arising out of or relating to this
Agreement, any provision hereof, the alleged breach thereof, or
in any way relating to the subject matter of this Agreement,
involving the Company, the Executive, and/or their respective
representatives, even though some or all of such claims
allegedly are extracontractual in nature, whether such claims
sound in contract, tort, or otherwise, at law or in equity,
under state or federal law, whether provided by statute or the
common law, for damages or any other relief, shall be resolved
by binding arbitration pursuant to the Federal Arbitration Act
in accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston, Texas. The
arbitration may be initiated by either party by the providing to
the other a written notice of arbitration specifying the claims.
Within thirty (30) days of the notice of initiation of the
arbitration procedure, each party shall denominate one
arbitrator. The two arbitrators shall select a third arbitrator
failing agreement on which within thirty (30) days of the
original notice, the parties (or either or them) shall apply to
the Senior Active United States District Judge for the Southern
District of Texas, who shall appoint a third arbitrator. The
three (3) arbitrators, utilizing the Commercial Arbitration
Rules of the American Arbitration Association, shall by majority
vote within one hundred twenty (120) days of the selection of
the third arbitrator, resolve all disputes between the parties.
There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but
shall be as brief as possible. The arbitrators shall not assign
the reasons for their decision. The arbitrators' decision shall
be final and nonappealable to the maximum extent permitted by
law. Judgement upon any award rendered in any such arbitration
proceeding may be entered by any federal or state court having
jurisdiction. This agreement to arbitrate shall be enforceable
in either federal or state court. The enforcement of this
agreement to arbitrate and all procedural aspects of this
agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate,
the issues subject to arbitration (i.e., arbitrability), the
scope of the arbitrable issues, allegations of waiver, delay or
defenses to arbitrability, and the rules governing the conduct
of the arbitration, shall be governed by and construed pursuant
to the Federal Arbitration Act and shall be decided by the
arbitrators. In deciding the substance of any such claims, the
arbitrators shall apply the substantive laws of the State of
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Texas (excluding Texas choice-of-law principles that might call
for the application of some other State's law); provided,
however, it is expressly agreed that the arbitrators shall have
no authority to award treble, exemplary, or punitive damages
under any circumstances regardless of whether such damages may
be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages
in connection with any such claims. This agreement to arbitrate
is not applicable to disputes between or among the Company and
the Executive based upon or arising out of any other agreement,
benefit plan, or program heretofore or hereafter entered into
between the Executive and the Company or its affiliates.
Notwithstanding the preceding provisions of this Section 8.2(i),
the Company and the Executive may agree to use one arbitrator
rather than three arbitrators as provided above, and, in the
event of any such agreement, the one hundred twenty (120) day
period referred to in the sixth sentence of this Section 8.2(i)
shall begin on the date of the parties' selection of such one
arbitrator.
(ii) Notwithstanding the agreement to arbitrate contained in Section
8.2(i), in the event that either party wishes to seek a
temporary restraining order, a preliminary or temporary
injunction, or other injunctive relief in connection with any or
all such claims, demands, cause of action, disputes,
controversies, and other matters in question arising out of or
relating to this Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the subject matter of
this Agreement, involving the Company, the Executive, and/or
their respective representatives, even though some or all of
such claims allegedly are extracontractual in nature, whether
such claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by statute
or the common law, for damages or any other relief, each party
shall have the right to pursue such injunctive relief in court,
rather than by arbitration. The parties agree that such action
for a temporary restraining order, a preliminary or temporary
injunction, or other injunctive relief may be brought in the
State or federal courts residing in Houston, Texas, or in any
other forum in which jurisdiction is appropriate.
ARTICLE 9. SUCCESSORS AND ASSIGNMENT
9.1 SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The date on
which any such succession becomes effective shall be deemed to be the date of
the Change in Control.
9.2 ASSIGNMENT BY THE EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary. If the Executive has not named a Beneficiary, then such
amounts shall be paid to the
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Executive's devisee, legatee, or other designee, or if there is no such
designee, to the Executive's estate. Executive shall not have any right to
pledge, hypothecate, anticipate, or assign this Agreement or the rights
hereunder, except upon his death as described in this Section 9.2.
ARTICLE 10. MISCELLANEOUS
10.1 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between the Executive and the Company, the employment of the
Executive by the Company is "at will," and may be terminated by either the
Executive or the Company at any time, subject to applicable law.
10.2 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Company. The Executive may
make or change such designations at any time.
10.3 SEVERABILITY. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the
provisions hereof and shall have no force and effect.
10.4 MODIFICATION. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the
Company, or by the respective parties' legal representatives and successors.
10.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in all
matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of _________________, 1998.
Mitchell Energy & Development Corp. Executive:
By:
--------------------------- ----------------------------
George P. Mitchell
Its: Chairman of the Board and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10(n)
EXECUTIVE CHANGE-IN-CONTROL
SEVERANCE AGREEMENT FOR
PHILLIP S. SMITH
Mitchell Energy & Development Corp.
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
====================================================================================================================
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 2
Article 3. Severance Benefits 4
Article 4. Form and Timing of Severance Benefits 7
Article 5. Excise Tax Treatment 7
Article 6. Establishment of Trust 9
Article 7. The Company's Payment Obligation 9
Article 8. Legal Remedies 10
Article 9. Successors and Assignment 12
Article 10. Miscellaneous 12
</TABLE>
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the ___ day of ________,
1998, by and between Mitchell Energy & Development Corp. (hereinafter referred
to as the "Company") and Phillip S. Smith (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company has approved the Company
entering into change-in-control severance agreements with certain key executives
of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control arise, the Board
believes it is imperative that the Company and the Board should be able to rely
upon the Executive to continue in his position, and that the Company should be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its shareholders without concern that the
Executive might be distracted by the personal uncertainties and risks created by
the possibility of a Change in Control;
WHEREAS, should the possibility of a Change in Control arise, in addition
to his regular duties, the Executive may be called upon to assist in the
assessment of such possible Change in Control, advise management and the Board
as to whether such Change in Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
WHEREAS, the Executive and the Company desire that the terms of this
Agreement shall completely replace and supersede the provisions set forth in the
Severance Compensation Agreement, entered into by and between the Company and
the Executive on August 31, 1991, setting forth the terms and provisions with
respect to the Executive's entitlement to severance payments and benefits
following a termination from the Company.
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control,
and to induce the Executive to remain in the employ of the Company, and for
other good and valuable consideration, the Company and the Executive agree as
follows:
ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE
This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years. However, at the end of such three (3) year
period and, if extended, at the end of each additional year thereafter, the term
of this Agreement shall be extended automatically for one (1) additional year,
unless the Company delivers written notice six (6) months prior to the end of
such term, or extended term, to the Executive, that the Agreement will not be
extended. In such case, the Agreement will terminate at the end of the term, or
extended term, then in progress.
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Notwithstanding the preceding, in the event a Change in Control occurs
during the original or any extended term, this Agreement will remain in effect
for a period of two (2) years after such Change in Control, and if within said
two (2) years the contingency factors occur which would entitle the Executive to
the Severance Benefits as provided herein, this Agreement shall remain in effect
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to the Executive.
ARTICLE 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.
2.1 "ANNUAL BONUS" means the average of the actual annual bonus amounts
awarded to the Executive (regardless of when such award is paid or payable)
under the Company's annual bonus plan then in effect for the three (3) fiscal
years that have ended immediately prior to the fiscal year during which the
Executive's termination of employment occurs.
2.2 "BASE SALARY" means the greater of (1) the Executive's annual base
salary in effect immediately prior to the Change in Control, (2) the Executive's
annual base salary in effect immediately prior to the Executive's termination of
employment, or (3) the Executive's annual base salary in effect sixty (60) days
prior to the Executive's termination of employment.
2.3 "BENEFICIARY" means the persons or entities designated or deemed
designated by the Executive pursuant to Section 10.2 herein.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CAUSE" means (a) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his duties, and after the Executive has failed to resume
substantial performance of his duties on a continuous basis within thirty (30)
calendar days of receiving such demand; (b) the Executive's willfully engaging
in conduct (other than conduct covered under (a) above) which is demonstrably
and materially injurious to the Company, monetarily or otherwise; or (c) the
Executive's having been convicted of a felony. For purposes of this
subparagraph, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Company.
2.6 "CHANGE IN CONTROL" means (i) the Company shall not be the surviving
entity in any merger, consolidation, or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly owned subsidiary of
the Company); (ii) the Company sells, leases, or exchanges all or substantially
all of its assets to any other person or entity (other than a wholly owned
subsidiary of the Company); (iii) the Company is dissolved or liquidated; (iv)
any person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than fifty percent (50%) of the outstanding
shares of the Company's voting stock (based upon voting power), other than as a
result
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of the death or incapacity of George P. Mitchell; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.7 "CODE" means the United States Internal Revenue Code of 1986, as
amended, and any successors thereto.
2.8 "COMPANY" means Mitchell Energy & Development Corp., a Texas
corporation, or any successor thereto as provided in Article 9 herein.
2.9 "DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Executive was employed when such disability commenced.
2.10 "EFFECTIVE DATE" means the date of this Agreement set forth above.
2.11 "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.
2.12 "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
2.13 "GOOD REASON" shall mean, without the Executive's express written consent,
the occurrence of any one or more of the following during the Retention Period:
(a) The assignment of the Executive to duties materially
inconsistent with the Executive's authorities, duties,
responsibilities, and status (including offices and
reporting requirements) as an employee of the Company, or a
reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from
those in effect immediately preceding the Change in
Control;
(b) A reduction by the Company in the Executive's total
compensation (including base salary, target annual bonus
opportunity, qualified retirement benefits, nonqualified
retirement benefits, welfare benefits, any long-term
incentive compensation opportunities, and/or any other
employee benefits) as in effect immediately prior to the
date on which a Change in Control occurs;
(c) The Company requiring the Executive to be based more than
sixty (60) miles from the location of his principal office
immediately prior to the Change in Control; or
(d) The failure of the Company to provide directors and
officers liability insurance covering the Executive
comparable to that provided immediately prior to the
occurrence of a Change in Control.
The Executive's continued employment shall not constitute a waiver of the
Executive's rights with respect to any circumstance constituting Good Reason.
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2.14 "NOTICE OF TERMINATION" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
2.15 "QUALIFYING TERMINATION" means any of the events described in Section
3.2 herein, the occurrence of which triggers the payment of Severance Benefits
hereunder.
2.16 "RETENTION PERIOD" means the period of time beginning on the date of
a Change in Control and ending on the date two (2) years following the Change in
Control.
2.17 "RETIREMENT" means a voluntary termination of employment by the
Executive which qualifies the Executive to receive immediately payable
retirement benefits under the Mitchell Energy & Development Corp. Retirement
Plan or under the successor or replacement of such retirement plan if it is then
no longer in effect. Notwithstanding the preceding, no Retirement will be deemed
to exist under this Agreement unless and until the Executive specifically
designates such termination a Retirement, and any such designation of Retirement
will in no way void the Executive's right to severance benefits under this
Agreement if the Executive is otherwise eligible for such severance benefits
(for example, if Executive also had Good Reason for his termination of
employment of if such termination occurs during the thirteenth (13th) calendar
month following the month in which a Change in Control occurs).
2.18 "SEVERANCE BENEFITS" means the payments and benefits provided for in
Section 3.3 herein.
2.19 "TRUST" means a grantor trust created pursuant to Article 6.
ARTICLE 3. SEVERANCE AND OTHER BENEFITS
3.1 RIGHT TO SEVERANCE AND OTHER BENEFITS. The Executive shall be entitled
to receive from the Company Severance Benefits, as described in Section 3.3
herein, if there has been a Change in Control and if a Qualifying Termination
has occurred. Unless otherwise provided under this Agreement or another
compensation plan, program, or written agreement, the Executive shall not be
entitled to receive Severance Benefits if he is terminated for Cause, or if his
employment with the Company ends due to death or Disability, or due to a
voluntary termination of employment by the Executive without Good Reason except
during the thirteenth (13th) calendar month following the month in which a
Change in Control occurs. Solely upon a Change in Control, the Executive shall
be entitled to the benefits provided in Section 3.5 hereof.
3.2 QUALIFYING TERMINATION. The occurrence of any one or more of the
following events shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) An involuntary termination of the Executive's employment
for reasons other than by the Company for Cause or by
reason of the Executive's death or Disability (1) within
the Retention Period pursuant to a Notice of Termination
delivered to the Executive by the Company; (2) within six
(6) months prior to a Change in Control; or (3) prior to
the date of a Change in Control but the Executive
reasonably demonstrates that such termination (a) was at
the request of a third party who has indicated an intention
or taken steps reasonably calculated to effect a Change in
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Control and who effectuates such Change in Control; or (b)
otherwise arose in connection with, or in anticipation of,
a Change in Control which has been threatened or proposed
and which actually occurs; or
(b) A voluntary termination by the Executive for Good Reason
within the Retention Period pursuant to a Notice of
Termination delivered tot he Company by the Executive; or
(c) A termination of the Executive's employment for any reason
other than by the Company for Cause (including without
limitation, a voluntary termination by the Executive, a
termination by the Company without Cause, or a termination
by reason of the Executive's death, Disability, or
Retirement) during the thirteenth (13th) calendar month
following the month in which a Change in Control occurs
pursuant to a Notice of Termination by the Executive.
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event the Executive becomes
entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2
herein, the Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to the Executive's unpaid base salary,
accrued vacation pay, and earned but not taken vacation pay
through the Effective Date of Termination.
(b) An amount equal to three (3) times the Executive's Base
Salary.
(c) An amount equal to three (3) times the Executive's Annual
Bonus.
(d) The Annual Bonus multiplied by a fraction, the numerator of
which is the number of full completed days in the bonus
plan year through the Effective Date of Termination, and
the denominator of which is three hundred sixty-five (365).
This payment will be in lieu of any other payment to be
made to the Executive under the annual bonus plan for the
respective plan year.
(e) A continuation of the welfare benefits of health care, life
and accidental death and dismemberment, and disability
insurance coverage for twenty-four (24) months after the
Effective Date of Termination. These benefits shall be
provided to the Executive at the same premium cost, and at
the same coverage level, as in effect as of the Executive's
Effective Date of Termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, or for management employees with
respect to supplemental benefits, the cost and/or coverage
level, likewise, shall change for the Executive in a
corresponding manner.
(f) Solely for purposes of the Company's long-term incentive
plans, (i) the Executive shall be fully and immediately
vested in all of his outstanding awards under such plans,
(ii) the Executive shall be deemed to have terminated
employment with the Company by reason of retirement, and
(iii) the committee or committees administering such plans
shall be deemed to have consented to such retirement.
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(g) For purposes of the Company's nonqualified retirement plans
and retiree medical plans, benefits shall be calculated
under the assumption that the Executive's employment
continued following the Effective Date of Termination for
three (3) full years (i.e., three (3) additional years of
age and service credits shall be added); provided, however,
that for purposes of determining "final average pay" under
such programs, the Executive's actual pay history as of the
Effective Date of Termination shall be used.
(h) The aggregate benefits accrued by the Executive as of the
Effective Date of Termination under any savings and
retirement plans sponsored by the Company shall be
distributed pursuant to the terms of the applicable plan.
(i) Compensation which has been deferred under any deferred
compensation plans sponsored by the Company, together with
all interest that has been credited with respect to any
such deferred compensation balances, shall be distributed
pursuant to the terms of the applicable plan if elected by
the Participant.
3.4 WAIVER OF BENEFITS UNDER COMPANY'S SEVERANCE BENEFIT PLAN.
Notwithstanding any provision to the contrary herein or in the Mitchell Energy &
Development Corp. Severance Benefit Plan, the Executive hereby knowingly,
voluntarily, and irrevocably waives any and all claims and rights he may have to
payments and benefits under such plan in the event he is entitled to Severance
Benefits hereunder.
3.5 BENEFITS CONTINGENT SOLELY UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control while the Executive is employed by the Company
(and without regard to whether a Qualifying Termination subsequently occurs),
for all purposes under the Company's long-term incentive plans (a) the Executive
shall be fully and immediately vested in all of his outstanding awards under
such plans, (b) the Executive shall be deemed to have terminated employment with
the Company by reason of retirement at the time of his termination of employment
with the Company regardless of the reason therefore, and (iii) the committee or
committees administering such plans shall be deemed to have consented to such
retirement. The Company hereby represents and warrants to the Executive that on
or before the Effective Date the Company has obtained the necessary consents of
the committee or committees administering the Company's long-term incentive
plans to the provisions of Section 3.3(f) and this Section 3.5.
3.6 TERMINATION FOR DISABILITY. If an Executive's employment is terminated
due to Disability, following a Change in Control, or prior to a Change in
Control as described in Section 3.2(a), the Executive shall receive his full
base salary and accrued vacation through the Effective Date of Termination, at
which point in time the Executive's benefits shall be determined in accordance
with the Company's disability, retirement, insurance, and other applicable plans
and programs then in effect. In the event the Executive's employment is
terminated due to Disability, the Executive shall not be entitled to the
Severance Benefits described in Section 3.3 unless otherwise provided under this
Agreement.
3.7 TERMINATION FOR DEATH. If the Executive's employment is terminated by
reason of his death following a Change in Control, or prior to a Change in
Control as described in Section 3.2(a), the Company shall pay the Executive his
full base salary and accrued vacation through the Effective Date of Termination,
plus all other amounts to which the Executive is entitled under the Company's
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retirement, survivor's benefits, insurance, and other applicable compensation
and benefit programs of the Company then in effect. In the event the Executive's
employment is terminated by reason of his death, the Executive shall not be
entitled to the Severance Benefits described in Section 3.3 unless otherwise
provided under this Agreement.
3.8 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON. If the
Executive's employment is terminated following a Change in Control, or prior to
a Change in Control as described in Section 3.2(a) either: (a) by the Company
for cause; or (b) by the Executive (other than for Good Reason, or under
circumstances giving rise to a Qualifying Termination described in Section
3.2(c) herein), the Company shall pay the Executive his full base salary and
accrued vacation through the Effective Date of Termination, plus all other
amounts to which the Executive is entitled under any compensation and benefit
plans of the Company, at the time such payments are due, and the Company shall
have no further obligations to the Executive under this Agreement.
3.9 NOTICE OF TERMINATION. Any termination of employment by the Company or
by the Executive shall be communicated by a Notice of Termination.
ARTICLE 4. FORM AND TIMING OF SEVERANCE BENEFITS
4.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.3(a), (b), (c), and (d) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from such
date.
4.2 WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Agreement all taxes as legally shall be required
(including, without limitation, any United States federal taxes and any other
state, city, or local taxes).
ARTICLE 5. EXCISE TAX TREATMENT
5.1 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with, or plan of the Company (in
the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive, in cash, an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 5.1 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Executive as soon as practical following the Effective Date of
Termination, but in no event beyond thirty (30) days from such date.
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5.2 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any payments or benefits received or to be received by the
Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, or with any person (which
shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as
defined in Section 13(d) therein) whose actions result in a
Change in Control or any person affiliated with the Company
or such persons) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel as
supported by the Company's independent auditors and
acceptable to the Executive, such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Total Payments; or (ii) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment
or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Effective Date of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
5.3 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 5.2 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Company.
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ARTICLE 6. ESTABLISHMENT OF TRUST
As soon as practicable following the Effective Date, the Company shall
create a Trust (which shall be a grantor trust within the meaning of Sections
671-678 of the Code) for the benefit of the Executive and Beneficiaries, as
appropriate. The Trust shall have a Trustee as selected by the Company, and
shall have certain restrictions as to the Company's ability to amend the Trust
or cancel benefits provided thereunder. Any assets contained in the Trust shall,
at all times, be specifically subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency; such terms to be
specifically defined within the provisions of the Trust, along with the required
procedure for notifying the Trustee of any bankruptcy or insolvency.
At any time following the Effective Date, the Company may, but is not
obligated to, deposit assets in the Trust in an amount equal to or less than the
aggregate severance benefits which may become due to the Executive under
Sections 3.3(a), (b), (c), (d), and 5.1 of this Agreement.
Upon a Change in Control, the Company shall deposit assets in such Trust
in an amount equal to the estimated aggregate Severance Benefits which may
become due to the Executive under Sections 3.3(a), (b), (c), (d), 5.1, and 8.1
of this Agreement. Upon a Change in Control, the Company shall also deposit
assets in the Trust in an amount equal to any benefits due under the Company's
nonqualified retirement plans and deferred compensation plans less any amount of
such benefits currently funded under any trust established under such plans.
ARTICLE 7. THE COMPANY'S PAYMENT OBLIGATION
7.1 GENERAL. Subject to Section 7.3, the Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
7.2 MITIGATION. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
7.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of this Agreement to the contrary, in the event the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Company may make any modifications to this Agreement necessary to preserve
the use of pooling of interests accounting.
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ARTICLE 8. LEGAL REMEDIES
8.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of mediation, arbitration or litigation,
prejudgment interest, and other expenses incurred in good faith by the Executive
as a result of the Company's refusal to provide the Severance Benefits or other
benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict (including
conflicts related to the calculation of parachute payments) between the parties
pertaining to this Agreement, provided, however, that no expenses shall be paid
if the arbitration panel or court rules that the Executive's claims are without
merit.
8.2 ALTERNATIVE DISPUTE RESOLUTION INCLUDING ARBITRATION. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the dispute
has not been resolved within thirty (30) days after the date a party hereto
provides notice of the dispute to the other party, either party may initiate
mediation of the dispute by sending the other party a written request that the
dispute be mediated. The parties shall mediate the dispute before a neutral,
third party mediator 9if a mutually agreeable mediator cannot be identified, oe
shall be appointed by the American Arbitration Association) selected by the
mutual agreement of both parties within thirty (30) days after the date of
written request for mediation. If the dispute has not been resolved within sixty
(60) days after the original notice of a dispute or within thirty (30) days
after the date of the request for mediation, whichever is the later, then either
party may initiate arbitration proceedings and the dispute shall then be
resolved as follows:
(i) Except as provided in Section 8.2(ii), any and all claims,
demands, cause of action, disputes, controversies, and
other matters in question arising out of or relating to
this Agreement, any provision hereof, the alleged breach
thereof, or in any way relating to the subject matter of
this Agreement, involving the Company, the Executive,
and/or their respective representatives, even though some
or all of such claims allegedly are extracontractual in
nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law,
whether provided by statute or the common law, for damages
or any other relief, shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by either party by
the providing to the other a written notice of arbitration
specifying the claims. Within thirty (30) days of the
notice of initiation of the arbitration procedure, each
party shall denominate one arbitrator. The two arbitrators
shall select a third arbitrator failing agreement on which
within thirty (30) days of the original notice, the parties
(or either or them) shall apply to the Senior Active United
States District Judge for the Southern District of Texas,
who shall appoint a third arbitrator. The three (3)
arbitrators, utilizing the Commercial Arbitration Rules of
the American Arbitration Association, shall by majority
vote within one hundred twenty (120) days of the selection
of the third arbitrator, resolve all disputes between the
parties. There shall be no transcript of the hearing before
the arbitrators. The arbitrators' decision shall be in
writing, but shall be as brief as possible. The arbitrators
shall not assign the reasons for their decision. The
arbitrators' decision shall be final and nonappealable to
the maximum extent permitted by law. Judgement upon any
award rendered in any such arbitration proceeding may be
entered by any federal
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or state court having jurisdiction. This agreement to
arbitrate shall be enforceable in either federal or state
court. The enforcement of this agreement to arbitrate and
all procedural aspects of this agreement to arbitrate,
including but not limited to, the construction and
interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of
the arbitrable issues, allegations of waiver, delay or
defenses to arbitrability, and the rules governing the
conduct of the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration Act and shall
be decided by the arbitrators. In deciding the substance of
any such claims, the arbitrators shall apply the
substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the
application of some other State's law); provided, however,
it is expressly agreed that the arbitrators shall have no
authority to award treble, exemplary, or punitive damages
under any circumstances regardless of whether such damages
may be available under Texas law, the parties hereby
waiving their right, if any, to recover treble, exemplary,
or punitive damages in connection with any such claims.
This agreement to arbitrate is not applicable to disputes
between or among the Company and the Executive based upon
or arising out of any other agreement, benefit plan, or
program heretofore or hereafter entered into between the
Executive and the Company or its affiliates.
Notwithstanding the preceding provisions of this Section
8.2(i), the Company and the Executive may agree to use one
arbitrator rather than three arbitrators as provided above,
and, in the event of any such agreement, the one hundred
twenty (120) day period referred to in the sixth sentence
of this Section 8.2(i) shall begin on the date of the
parties' selection of such one arbitrator.
(ii) Notwithstanding the agreement to arbitrate contained in
Section 8.2(i), in the event that either party wishes to
seek a temporary restraining order, a preliminary or
temporary injunction, or other injunctive relief in
connection with any or all such claims, demands, cause of
action, disputes, controversies, and other matters in
question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement, involving
the Company, the Executive, and/or their respective
representatives, even though some or all of such claims
allegedly are extracontractual in nature, whether such
claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief,
each party shall have the right to pursue such injunctive
relief in court, rather than by arbitration. The parties
agree that such action for a temporary restraining order, a
preliminary or temporary injunction, or other injunctive
relief may be brought in the State or federal courts
residing in Houston, Texas, or in any other forum in which
jurisdiction is appropriate.
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ARTICLE 9. SUCCESSORS AND ASSIGNMENT
9.1 SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The date on
which any such succession becomes effective shall be deemed to be the date of
the Change in Control.
9.2 ASSIGNMENT BY THE EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary. If the Executive has not named a Beneficiary, then such
amounts shall be paid to the Executive's devisee, legatee, or other designee, or
if there is no such designee, to the Executive's estate. Executive shall not
have any right to pledge, hypothecate, anticipate, or assign this Agreement or
the rights hereunder, except upon his death as described in this Section 9.2.
ARTICLE 10. MISCELLANEOUS
10.1 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will," and may be terminated by either the Executive or
the Company at any time, subject to applicable law.
10.2 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Company. The Executive may
make or change such designations at any time.
10.3 TERMINATION OF PRIOR AGREEMENT. Upon entering into this Agreement,
the Executive and the Company agree that the Severance Compensation Agreement
entered into by and between the Company and Executive on August 31, 1991 shall
terminate and be completely replaced and superseded by this Agreement.
10.4 SEVERABILITY. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
10.5 MODIFICATION. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company,
or by the respective parties' legal representatives and successors.
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10.6 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in all
matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of _________________, 1998.
Mitchell Energy & Development Corp. Executive:
By:
-------------------------------- ------------------------------------
W. D. Stevens
Its: President and Chief Operating Officer
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EXHIBIT 10(o)
EXECUTIVE CHANGE-IN-CONTROL
SEVERANCE AGREEMENT FOR
ALLEN J. TARBUTTON
Mitchell Energy & Development Corp.
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
====================================================================================================================
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 2
Article 3. Severance Benefits 4
Article 4. Form and Timing of Severance Benefits 7
Article 5. Excise Tax Treatment 7
Article 6. Establishment of Trust 9
Article 7. The Company's Payment Obligation 9
Article 8. Legal Remedies 10
Article 9. Successors and Assignment 12
Article 10. Miscellaneous 12
</TABLE>
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the ___ day of ________,
1998, by and between Mitchell Energy & Development Corp. (hereinafter referred
to as the "Company") and Allen J. Tarbutton (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company has approved the Company
entering into change-in-control severance agreements with certain key executives
of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control arise, the Board
believes it is imperative that the Company and the Board should be able to rely
upon the Executive to continue in his position, and that the Company should be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its shareholders without concern that the
Executive might be distracted by the personal uncertainties and risks created by
the possibility of a Change in Control;
WHEREAS, should the possibility of a Change in Control arise, in addition
to his regular duties, the Executive may be called upon to assist in the
assessment of such possible Change in Control, advise management and the Board
as to whether such Change in Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
WHEREAS, the Executive and the Company desire that the terms of this
Agreement shall completely replace and supersede the provisions set forth in the
Severance Compensation Agreement, entered into by and between the Company and
the Executive on April 16, 1992, setting forth the terms and provisions with
respect to the Executive's entitlement to severance payments and benefits
following a termination from the Company.
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control,
and to induce the Executive to remain in the employ of the Company, and for
other good and valuable consideration, the Company and the Executive agree as
follows:
ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE
This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years. However, at the end of such three (3) year
period and, if extended, at the end of each additional year thereafter, the term
of this Agreement shall be extended automatically for one (1) additional year,
unless the Company delivers written notice six (6) months prior to the end of
such term, or extended term, to the Executive, that the Agreement will not be
extended. In such case, the Agreement will terminate at the end of the term, or
extended term, then in progress.
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Notwithstanding the preceding, in the event a Change in Control occurs
during the original or any extended term, this Agreement will remain in effect
for a period of two (2) years after such Change in Control, and if within said
two (2) years the contingency factors occur which would entitle the Executive to
the Severance Benefits as provided herein, this Agreement shall remain in effect
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to the Executive.
ARTICLE 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.
2.1 "ANNUAL BONUS" means the average of the actual annual bonus amounts
awarded to the Executive (regardless of when such award is paid or payable)
under the Company's annual bonus plan then in effect for the three (3) fiscal
years that have ended immediately prior to the fiscal year during which the
Executive's termination of employment occurs.
2.2 "BASE SALARY" means the greater of (1) the Executive's annual base
salary in effect immediately prior to the Change in Control, (2) the Executive's
annual base salary in effect immediately prior to the Executive's termination of
employment, or (3) the Executive's annual base salary in effect sixty (60) days
prior to the Executive's termination of employment.
2.3 "BENEFICIARY" means the persons or entities designated or deemed
designated by the Executive pursuant to Section 10.2 herein.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CAUSE" means (a) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his duties, and after the Executive has failed to resume
substantial performance of his duties on a continuous basis within thirty (30)
calendar days of receiving such demand; (b) the Executive's willfully engaging
in conduct (other than conduct covered under (a) above) which is demonstrably
and materially injurious to the Company, monetarily or otherwise; or (c) the
Executive's having been convicted of a felony. For purposes of this
subparagraph, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Company.
2.6 "CHANGE IN CONTROL" means (i) the Company shall not be the surviving
entity in any merger, consolidation, or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly owned subsidiary of
the Company); (ii) the Company sells, leases, or exchanges all or substantially
all of its assets to any other person or entity (other than a wholly owned
subsidiary of the Company); (iii) the Company is dissolved or liquidated; (iv)
any person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than fifty percent (50%) of the outstanding
shares of the Company's voting stock (based upon voting power), other than as a
result
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<PAGE> 5
of the death or incapacity of George P. Mitchell; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.7 "CODE" means the United States Internal Revenue Code of 1986, as
amended, and any successors thereto.
2.8 "COMPANY" means Mitchell Energy & Development Corp., a Texas
corporation, or any successor thereto as provided in Article 9 herein.
2.9 "DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Executive was employed when such disability commenced.
2.10 "EFFECTIVE DATE" means the date of this Agreement set forth above.
2.11 "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.
2.12 "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
2.13 "GOOD REASON" shall mean, without the Executive's express written
consent, the occurrence of any one or more of the following during the Retention
Period:
(a) The assignment of the Executive to duties materially
inconsistent with the Executive's authorities, duties,
responsibilities, and status (including offices and
reporting requirements) as an employee of the Company, or a
reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from
those in effect immediately preceding the Change in
Control;
(b) A reduction by the Company in the Executive's total
compensation (including base salary, target annual bonus
opportunity, qualified retirement benefits, nonqualified
retirement benefits, welfare benefits, any long-term
incentive compensation opportunities, and/or any other
employee benefits) as in effect immediately prior to the
date on which a Change in Control occurs;
(c) The Company requiring the Executive to be based more than
sixty (60) miles from the location of his principal office
immediately prior to the Change in Control; or
(d) The failure of the Company to provide directors and
officers liability insurance covering the Executive
comparable to that provided immediately prior to the
occurrence of a Change in Control.
The Executive's continued employment shall not constitute a waiver of the
Executive's rights with respect to any circumstance constituting Good Reason.
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<PAGE> 6
2.14 "NOTICE OF TERMINATION" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
2.15 "QUALIFYING TERMINATION" means any of the events described in Section
3.2 herein, the occurrence of which triggers the payment of Severance Benefits
hereunder.
2.16 "RETENTION PERIOD" means the period of time beginning on the date of
a Change in Control and ending on the date two (2) years following the Change in
Control.
2.17 "RETIREMENT" means a voluntary termination of employment by the
Executive which qualifies the Executive to receive immediately payable
retirement benefits under the Mitchell Energy & Development Corp. Retirement
Plan or under the successor or replacement of such retirement plan if it is then
no longer in effect. Notwithstanding the preceding, no Retirement will be deemed
to exist under this Agreement unless and until the Executive specifically
designates such termination a Retirement, and any such designation of Retirement
will in no way void the Executive's right to severance benefits under this
Agreement if the Executive is otherwise eligible for such severance benefits
(for example, if Executive also had Good Reason for his termination of
employment of if such termination occurs during the thirteenth (13th) calendar
month following the month in which a Change in Control occurs).
2.18 "SEVERANCE BENEFITS" means the payments and benefits provided for in
Section 3.3 herein.
2.19 "TRUST" means a grantor trust created pursuant to Article 6.
ARTICLE 3. SEVERANCE AND OTHER BENEFITS
3.1 RIGHT TO SEVERANCE AND OTHER BENEFITS. The Executive shall be entitled
to receive from the Company Severance Benefits, as described in Section 3.3
herein, if there has been a Change in Control and if a Qualifying Termination
has occurred. Unless otherwise provided under this Agreement or another
compensation plan, program, or written agreement, the Executive shall not be
entitled to receive Severance Benefits if he is terminated for Cause, or if his
employment with the Company ends due to death or Disability, or due to voluntary
termination of employment by the Executive without Good Reason except during the
thirteenth (13th) calendar month following the month in which a Change in
Control occurs. Solely upon a Change in Control, the Executive shall be entitled
to the benefits provided in Section 3.5 hereof.
3.2 QUALIFYING TERMINATION. The occurrence of any one or more of the
following events shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) An involuntary termination of the Executive's employment
for reasons other than by the Company for Cause or by
reason of the Executive's death or Disability (1) within
the Retention Period pursuant to a Notice of Termination
delivered to the Executive by the Company; (2) within six
(6) months prior to a Change in Control; or (3) prior to
the date of a Change in Control but the Executive
reasonably demonstrates that such termination (a) was at
the request of a third party who has indicated an intention
or taken steps reasonably calculated to effect a Change in
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<PAGE> 7
Control and who effectuates such Change in Control; or (b)
otherwise arose in connection with, or in anticipation of,
a Change in Control which has been threatened or proposed
and which actually occurs; or
(b) A voluntary termination by the Executive for Good Reason
within the Retention Period pursuant to a Notice of
Termination delivered to the Company by the Executive; or
(c) A termination of the Executive's employment for any reason
other than by the Company for Cause (including without
limitation, a voluntary termination by the Executive, a
termination by the Company without Cause, or a termination
by reason of the Executive's death, Disability, or
Retirement) during the thirteenth (13th) calendar month
following the month in which a Change in Control occurs
pursuant to a Notice of Termination by the Executive
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event the Executive becomes
entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2
herein, the Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to the Executive's unpaid base salary,
accrued vacation pay, and earned but not taken vacation pay
through the Effective Date of Termination.
(b) An amount equal to three (3) times the Executive's Base
Salary.
(c) An amount equal to three (3) times the Executive's Annual
Bonus.
(d) The Annual Bonus multiplied by a fraction, the numerator of
which is the number of full completed days in the bonus
plan year through the Effective Date of Termination, and
the denominator of which is three hundred sixty-five (365).
This payment will be in lieu of any other payment to be
made to the Executive under the annual bonus plan for the
respective plan year.
(e) A continuation of the welfare benefits of health care, life
and accidental death and dismemberment, and disability
insurance coverage for twenty-four (24) months after the
Effective Date of Termination. These benefits shall be
provided to the Executive at the same premium cost, and at
the same coverage level, as in effect as of the Executive's
Effective Date of Termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, or for management employees with
respect to supplemental benefits, the cost and/or coverage
level, likewise, shall change for the Executive in a
corresponding manner.
(f) Solely for purposes of the Company's long-term incentive
plans, (i) the Executive shall be fully and immediately
vested in all of his outstanding awards under such plans,
(ii) the Executive shall be deemed to have terminated
employment with the Company by reason of retirement, and
(iii) the committee or committees administering such plans
shall be deemed to have consented to such retirement.
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<PAGE> 8
(g) For purposes of the Company's nonqualified retirement plans
and retiree medical plans, benefits shall be calculated
under the assumption that the Executive's employment
continued following the Effective Date of Termination for
three (3) full years (i.e., three (3) additional years of
age and service credits shall be added); provided, however,
that for purposes of determining "final average pay" under
such programs, the Executive's actual pay history as of the
Effective Date of Termination shall be used.
(h) The aggregate benefits accrued by the Executive as of the
Effective Date of Termination under any savings and
retirement plans sponsored by the Company shall be
distributed pursuant to the terms of the applicable plan.
(i) Compensation which has been deferred under any deferred
compensation plans sponsored by the Company, together with
all interest that has been credited with respect to any
such deferred compensation balances, shall be distributed
pursuant to the terms of the applicable plan, if elected by
the Participant.
3.4 WAIVER OF BENEFITS UNDER COMPANY'S SEVERANCE BENEFIT PLAN.
Notwithstanding any provision to the contrary herein or in the Mitchell Energy &
Development Corp. Severance Benefit Plan, the Executive hereby knowingly,
voluntarily, and irrevocably waives any and all claims and rights he may have to
payments and benefits under such plan in the event he is entitled to Severance
Benefits hereunder.
3.5 BENEFITS CONTINGENT SOLELY UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control while the Executive is employed by the Company
(and without regard to whether a Qualifying Termination subsequently occurs),
for all purposes under the Company's long-term incentive plans (a) the Executive
shall be fully and immediately vested in all of his outstanding awards under
such plans, (b) the Executive shall be deemed to have terminated employment with
the Company by reason of retirement at the time of his termination of employment
with the Company regardless of the reason therefore, and (iii) the committee or
committees administering such plans shall be deemed to have consented to such
retirement. The Company hereby represents and warrants to the Executive that on
or before the Effective Date the Company has obtained the necessary consents of
the committee or committees administering the Company's long-term incentive
plans to the provisions of Section 3.3(f) and this Section 3.5.
3.6 TERMINATION FOR DISABILITY. If an Executive's employment is terminated
due to Disability following a Change in Control, or prior to a Change in Control
as described in Section 3.2(a), the Executive shall receive his full base salary
and accrued vacation through the Effective Date of Termination, at which point
in time the Executive's benefits shall be determined in accordance with the
Company's disability, retirement, insurance, and other applicable plans and
programs then in effect. In the event the Executive's employment is terminated
due to Disability, the Executive shall not be entitled to the Severance Benefits
described in Section 3.3 unless otherwise provided under this Agreement.
3.7 TERMINATION FOR DEATH. If the Executive's employment is terminated by
reason of his death following a Change in Control, or prior to a Change in
Control as described in Section 3.2(a), the Company shall pay the Executive his
full base salary and accrued vacation through the Effective Date of Termination,
plus all other amounts to which the Executive is entitled under the Company's
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<PAGE> 9
retirement, survivor's benefits, insurance, and other applicable compensation
and benefit programs of the Company then in effect. In the event the Executive's
employment is terminated by reason of his death, the Executive shall not be
entitled to the Severance Benefits described in Section 3.3 unless otherwise
provided under this Agreement.
3.8 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON. If the
Executive's employment is terminated following a Change in Control, or prior to
a Change in Control as described in Section 3.2(a) either: (a) by the Company
for cause; or (b) by the Executive (other than for Good Reason, or under
circumstances giving rise to a Qualifying Termination described in Section
3.2(c) herein), the Company shall pay the Executive his full base salary and
accrued vacation through the Effective Date of Termination, plus all other
amounts to which the Executive is entitled under any compensation and benefit
plans of the Company, at the time such payments are due, and the Company shall
have no further obligations to the Executive under this Agreement.
3.9 NOTICE OF TERMINATION. Any termination of employment by the Company or
by the Executive shall be communicated by a Notice of Termination.
ARTICLE 4. FORM AND TIMING OF SEVERANCE BENEFITS
4.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.3(a), (b), (c), and (d) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from such
date.
4.2 WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Agreement all taxes as legally shall be required
(including, without limitation, any United States federal taxes and any other
state, city, or local taxes).
ARTICLE 5. EXCISE TAX TREATMENT
5.1 EXCISE TAX EXCISE TAX EQUALIZATION PAYMENT. In the event that the
Executive becomes entitled to Severance Benefits or any other payment or benefit
under this Agreement, or under any other agreement with, or plan of the Company
(in the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive, in cash, an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 5.1 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Executive as soon as practical following the Effective Date of
Termination, but in no event beyond thirty (30) days from such date.
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5.2 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any payments or benefits received or to be received by the
Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, or with any person (which
shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as
defined in Section 13(d) therein) whose actions result in a
Change in Control or any person affiliated with the Company
or such persons) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel as
supported by the Company's independent auditors and
acceptable to the Executive, such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Total Payments; or (ii) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment
or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Effective Date of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
5.3 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 5.2 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Company.
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ARTICLE 6. ESTABLISHMENT OF TRUST
As soon as practicable following the Effective Date, the Company shall
create a Trust (which shall be a grantor trust within the meaning of Sections
671-678 of the Code) for the benefit of the Executive and Beneficiaries, as
appropriate. The Trust shall have a Trustee as selected by the Company, and
shall have certain restrictions as to the Company's ability to amend the Trust
or cancel benefits provided thereunder. Any assets contained in the Trust shall,
at all times, be specifically subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency; such terms to be
specifically defined within the provisions of the Trust, along with the required
procedure for notifying the Trustee of any bankruptcy or insolvency.
At any time following the Effective Date, the Company may, but is not
obligated to, deposit assets in the Trust in an amount equal to or less than the
aggregate severance benefits which may become due to the Executive under
Sections 3.3(a), (b), (c), (d) and 5.1 of this Agreement.
Upon a Change in Control, the Company shall deposit assets in such Trust
in an amount equal to the estimated aggregate Severance Benefits which may
become due to the Executive under Sections 3.3(a), (b), (c), (d), 5.1 and 8.1 of
this Agreement. Upon a Change in Control, the Company shall also deposit assets
in the Trust in an amount equal to any benefits due under the Company's
nonqualified retirement plans and deferred compensation plans less any amount of
such benefits currently funded under any trust established under such plans.
ARTICLE 7. THE COMPANY'S PAYMENT OBLIGATION
7.1 GENERAL. Subject to Section 7.3, the Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
7.2 MITIGATION. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
7.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of this Agreement to the contrary, in the event the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Company may make any modifications to this Agreement necessary to preserve
the use of pooling of interests accounting.
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ARTICLE 8. LEGAL REMEDIES
8.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of mediation, arbitration or litigation,
prejudgment interest, and other expenses incurred in good faith by the Executive
as a result of the Company's refusal to provide the Severance Benefits or other
benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict (including
conflicts related to the calculation of parachute payments) between the parties
pertaining to this Agreement, provided, however, that no expenses shall be paid
if the arbitration panel or court rules that the Executive's claims are without
merit.
8.2 ALTERNATIVE DISPUTE RESOLUTION INCLUDING ARBITRATION. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the dispute
has not been resolved within thirty (30) days after the date a party hereto
provides notice of the dispute to the other party, either party may initiate
mediation of the dispute by sending the other party a written request that the
dispute be mediated. The parties shall mediate the dispute before a neutral,
third party mediator (if a mutually agreeable mediator cannot be identified, oe
shall be appointed by the American Arbitration Association) selected by the
mutual agreement of both parties within thirty (30) days after the date of
written request for mediation. If the dispute has not been resolved within sixty
(60) days after the original notice of a dispute or within thirty (30) days
after the date of the request for mediation, whichever is the later, then either
party may initiate arbitration proceedings and the dispute shall then be
resolved as follows:
(i) Except as provided in Section 8.2(ii), any and all claims,
demands, cause of action, disputes, controversies, and
other matters in question arising out of or relating to
this Agreement, any provision hereof, the alleged breach
thereof, or in any way relating to the subject matter of
this Agreement, involving the Company, the Executive,
and/or their respective representatives, even though some
or all of such claims allegedly are extracontractual in
nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law,
whether provided by statute or the common law, for damages
or any other relief, shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by either party by
the providing to the other a written notice of arbitration
specifying the claims. Within thirty (30) days of the
notice of initiation of the arbitration procedure, each
party shall denominate one arbitrator. The two arbitrators
shall select a third arbitrator failing agreement on which
within thirty (30) days of the original notice, the parties
(or either or them) shall apply to the Senior Active United
States District Judge for the Southern District of Texas,
who shall appoint a third arbitrator. The three (3)
arbitrators, utilizing the Commercial Arbitration Rules of
the American Arbitration Association, shall by majority
vote within one hundred twenty (120) days of the selection
of the third arbitrator, resolve all disputes between the
parties. There shall be no transcript of the hearing before
the arbitrators. The arbitrators' decision shall be in
writing, but shall be as brief as possible. The arbitrators
shall not assign the reasons for their decision. The
arbitrators' decision shall be final and nonappealable to
the maximum extent permitted by law. Judgement upon any
award rendered in any such arbitration proceeding may be
entered by any federal
10
<PAGE> 13
or state court having jurisdiction. This agreement to
arbitrate shall be enforceable in either federal or state
court. The enforcement of this agreement to arbitrate and
all procedural aspects of this agreement to arbitrate,
including but not limited to, the construction and
interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of
the arbitrable issues, allegations of waiver, delay or
defenses to arbitrability, and the rules governing the
conduct of the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration Act and shall
be decided by the arbitrators. In deciding the substance of
any such claims, the arbitrators shall apply the
substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the
application of some other State's law); provided, however,
it is expressly agreed that the arbitrators shall have no
authority to award treble, exemplary, or punitive damages
under any circumstances regardless of whether such damages
may be available under Texas law, the parties hereby
waiving their right, if any, to recover treble, exemplary,
or punitive damages in connection with any such claims.
This agreement to arbitrate is not applicable to disputes
between or among the Company and the Executive based upon
or arising out of any other agreement, benefit plan, or
program heretofore or hereafter entered into between the
Executive and the Company or its affiliates.
Notwithstanding the preceding provisions of this Section
8.2(i), the Company and the Executive may agree to use one
arbitrator rather than three arbitrators as provided above,
and, in the event of any such agreement, the one hundred
twenty (120) day period referred to in the sixth sentence
of this Section 8.2(i) shall begin on the date of the
parties' selection of such one arbitrator.
(ii) Notwithstanding the agreement to arbitrate contained in
Section 8.2(i), in the event that either party wishes to
seek a temporary restraining order, a preliminary or
temporary injunction, or other injunctive relief in
connection with any or all such claims, demands, cause of
action, disputes, controversies, and other matters in
question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement, involving
the Company, the Executive, and/or their respective
representatives, even though some or all of such claims
allegedly are extracontractual in nature, whether such
claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief,
each party shall have the right to pursue such injunctive
relief in court, rather than by arbitration. The parties
agree that such action for a temporary restraining order, a
preliminary or temporary injunction, or other injunctive
relief may be brought in the State or federal courts
residing in Houston, Texas, or in any other forum in which
jurisdiction is appropriate.
11
<PAGE> 14
ARTICLE 9. SUCCESSORS AND ASSIGNMENT
9.1 SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The date on
which any such succession becomes effective shall be deemed to be the date of
the Change in Control.
9.2 ASSIGNMENT BY THE EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary. If the Executive has not named a Beneficiary, then such
amounts shall be paid to the Executive's devisee, legatee, or other designee, or
if there is no such designee, to the Executive's estate. Executive shall not
have any right to pledge, hypothecate, anticipate, or assign this Agreement or
the rights hereunder, except upon his death as described in this Section 9.2.
ARTICLE 10. MISCELLANEOUS
10.1 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will," and may be terminated by either the Executive or
the Company at any time, subject to applicable law.
10.2 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Company. The Executive may
make or change such designations at any time.
10.3 TERMINATION OF PRIOR AGREEMENT. Upon entering into this Agreement,
the Executive and the Company agree that the Severance Compensation Agreement
entered into by and between the Company and the Executive on April 16, 1992
shall terminate and be completely replaced and superseded by this Agreement.
10.4 SEVERABILITY. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
10.5 MODIFICATION. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company,
or by the respective parties' legal representatives and successors.
12
<PAGE> 15
10.6 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in all
matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of _________________, 1998.
Mitchell Energy & Development Corp. Executive:
By:
-------------------------------- ------------------------------------
W. D. Stevens
Its: President and Chief Operating Officer
13
<PAGE> 1
EXHIBIT 12
Mitchell Energy & Development Corp. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED JANUARY 31, 1999, 1998, 1997, 1996 AND 1995
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31
------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Pretax earnings from continuing operations .......... $ 70,210 $ 156,132 $ 133,757 $ 50,735 $ (84,593)
Add (Deduct):
Previously capitalized interest
charged against pretax earnings ............... 8,204 1,281 231 232 323
Losses of less-than-50%-owned persons ............ 1,080 -- -- -- --
Fixed charges (see below) ........................ 72,719 68,234 61,664 46,944 37,103
Reverse effect of inclusion of interest
capitalized in fixed charges above ............ (5,304) (1,333) (835) (1,283) (2,569)
Undistributed earnings of
less-than-50%-owned persons ................... (914) (4,321) (12,024) (13,900) (6,215)
----------- ----------- ----------- ----------- -----------
$ 145,995 $ 219,993 $ 182,793 $ 82,728 $ (55,951)
=========== =========== =========== =========== ===========
FIXED CHARGES
Interest expense incurred
Consolidated (a).................................. $ 62,753 $ 60,759 $ 56,782 $ 42,531 $ 35,070
50%-owned persons ................................ 3,101 4,008 2,715 2,246 --
Less-than-50%-owned persons ...................... 3,032(c) -- -- -- --
----------- ----------- ----------- ----------- -----------
68,886 64,767 59,497 44,777 35,070
Portion of rental expense
representing interest (b) ........................ 3,833 3,467 2,167 2,167 2,033
----------- ----------- ----------- ----------- -----------
$ 72,719 $ 68,234 $ 61,664 $ 46,944 $ 37,103
=========== =========== =========== =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES .................. 2.01 3.22 2.96 1.76 *
=========== =========== =========== =========== ===========
</TABLE>
* Additional earnings of $93,054 would have been necessary to bring ratio to
1.0x.
- ------------------------------
(a) At January 31, 1999, the Company had outstanding guaranties of the
indebtedness of third parties and less-than-50%-owned equity investees
totaling approximately $15,867,000 under which it has not been, nor is it
expected that it will be, required to perform. Fixed charges related to
these outstanding borrowings, estimated at approximately $900,000 for the
fiscal year ended January 31, 1999, have been excluded from the reported
fixed charges.
(b) Represents one-third of rental expense under operating lease agreements.
(c) At January 31, 1995, the Company had an outstanding guaranty covering
$58,667,000 of indebtedness of Belvieu Environmental Fuels (BEF), a
one-third-owned entity, under which it could have been required to perform
on May 31, 1995. Because of this, interest expense incurred during fiscal
1995 of $3,032,000 attributable to the Company's share of BEF's debt (all
of which was capitalized by BEF) was included in the Company's reported
fixed charges. This guaranty was eliminated when BEF's debt was
subsequently converted to a term loan.
<PAGE> 1
EXHIBIT 13
THE COMPANY
Mitchell Energy & Development Corp., one of the nation's largest independent
producers of natural gas and natural gas liquids, traces its origins to a small
wildcatting firm formed in 1946.
The Company's primary businesses are production of natural gas and oil
and gathering, processing and marketing of natural gas and natural gas liquids.
In fiscal 1999, the Company produced 94 billion cubic feet of natural gas and
17.5 million barrels of liquid hydrocarbons (natural gas liquids, oil and
condensate). At year end, it owned or had interests in 3,308 wells, 1.4 million
acres of leases and 12 gas processing plants. In addition, the Company owned or
operated 8,800 miles of gas gathering pipelines.
After completing a personnel reduction program in February 1999, the
Company had approximately 875 full-time employees.
FORWARD-LOOKING INFORMATION
All statements included in this annual report, other than statements of
historical fact, are forward-looking statements. These include, but are not
limited to, certain statements made in the Letter to Shareholders; strategies,
goals and expectations set forth in the Exploration and Production and Gas
Services sections; and discussions of liquidity and capital resources and other
matters included in Management's Discussion and Analysis of Financial Position
and Results of Operations. Although the Company believes that its expectations
are based on reasonable assumptions, it can give no assurances that its goals
will be achieved. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include the timing and
extent of changes in commodity prices for natural gas, NGLs and crude oil; the
attainment of forecasted operating levels and reserve replacement; Year 2000
non-compliance of third parties of business importance to the Company; and
unexpected changes in competitive and economic conditions, government
regulations, technology and other factors.
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders ............................................... 2
Exploration and Production ........................................... 4
Gas Services ......................................................... 12
Management's Discussion and Analysis of
Financial Position and Results of Operations ..................... 17
Consolidated Financial Statements .................................... 27
Notes to Consolidated Financial Statements ........................... 31
Report of Independent Public Accountants ............................. 45
Supplemental Oil and Gas Information ................................. 46
Historical Summary ................................................... 50
Board of Directors ................................................... 52
Principal Officers ................................................... 53
Corporate Information ................................................ 53
</TABLE>
DEFINITIONS
<TABLE>
<S> <C>
MMBtu...................... million British thermal units
Mcf........................ thousand cubic feet (measure of gas volume)
MMcf....................... million cubic feet
Bcf........................ billion cubic feet
Bbl........................ barrel (measure of liquid hydrocarbon volume)
MMBbls..................... million barrels
NGL or NGLs................ natural gas liquids (ethane, propane, butanes
and natural gasoline)
DD&A....................... depreciation, depletion and amortization
</TABLE>
Cover: This natural gas development well, the Tulane Gordon #1, is looking for
natural gas from the Wilcox formation in Colorado County, Texas. Here in the
Frelsburg field, Mitchell will co-mingle gas from various Wilcox sand zones into
a single completion to increase the well's productivity.
Note: Natural gas volumes in this report are stated at the legal pressure base
of the area in which the reserves are located and at 60 degrees Fahrenheit.
Pipeline throughput volumes are based on an average energy content of 1,000 Btu
per cubic foot. Where applicable, NGL volume, price and reserve information and
pipeline throughput includes equity partnership interests.
<PAGE> 2
FINANCIAL HIGHLIGHTS
Mitchell Energy & Development Corp. and Subsidiaries
Year Ended January 31 (in thousands except per-share data)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ............ $ (52,962) $ 37,826
========= =========
NET EARNINGS (LOSS) ................................... $ (49,712) $ (35,107)*
========= =========
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
From continuing operations
Class A .......................................... $ (1.11) $ .71
Class B .......................................... (1.05) .77
Net earnings
Class A .......................................... (1.04) (.66)
Class B .......................................... (.99) (.72)
REVENUES .............................................. $ 701,390 $ 790,502
========= =========
SEGMENT OPERATING EARNINGS (LOSS)
Exploration and production ............................ $ 9,234 $ 62,528
Natural gas processing ................................ (2,083) 28,330
Natural gas gathering and marketing ................... 23,483 21,982
Other gas services .................................... 13,949 13,192
--------- ---------
44,583 126,032
Unusual items
Proved property impairments ...................... (42,250) --
Personnel reduction program costs ................ (15,652) --
Gas services asset write-downs ................... (7,560) --
Water well litigation (provision) reversals ...... 4,000 (7,000)
Royalty litigation settlement provision .......... -- (26,000)
Gain from sale of contract drilling assets ....... -- 2,382
--------- ---------
$ (16,879) $ 95,414
========= =========
CAPITAL AND EXPLORATORY EXPENDITURES** ................ $ 289,402 $ 258,292
========= =========
LONG-TERM DEBT (INCLUDING CURRENT MATURITIES) ......... $ 462,467 $ 414,267
========= =========
STOCKHOLDERS' EQUITY .................................. $ 324,774 $ 412,926
========= =========
OPERATING STATISTICS (average daily amounts)
Natural gas sales (Mcf) ............................... 247,600 238,200
Crude oil and condensate sales (Bbls) ................. 6,800 6,200
Natural gas liquids production (Bbls) ................. 41,100 45,300
Pipeline throughput (Mcf) ............................. 554,000 426,000
</TABLE>
- ----------
* Includes a $67,123 loss on the sale of The Woodlands Corporation and an
extraordinary charge of $13,250 from the extinguishment of debt.
** Includes asset acquisitions of $89,266 and $26,280.
ESTIMATED PROVED RESERVES
YEAR ENDED JANUARY 31
[BAR CHART]
686 697 701 778 867
'95 '96 '97 '98 '99
NATURAL GAS (Bcf)
[BAR CHART]
136 139 140 162 155
'95 '96 '97 '98 '99
LIQUID HYDROCARBONS (MMBbls)
[ ] Natural Gas Liquids
[ ] Oil & Condensate
1
<PAGE> 3
LETTER TO SHAREHOLDERS
Fiscal 1999 was a punishing year for the energy industry. The lowest oil and
natural gas liquids prices since 1986 and weaker natural gas prices severely
impacted our financial results. We're pleased to say that operationally,
however, your Company had a good year. We grew both oil and gas sales, and from
a reserve standpoint, again more than replaced production. Also, progress
continued to be made in reducing overall costs.
In the summer, when it became clearer there would be a protracted downturn
in prices, several steps were taken to deal with the eroding market conditions.
Initially, the fiscal 1999 capital budget was cut by $41 million ( 17 percent),
and a companywide hiring freeze was put in place. We also began trimming
operating and administrative costs wherever possible and took other measures to
improve cash flows.
As energy prices continued to deteriorate through the fall, and winter
failed to arrive for the second year in a row, it became obvious that the first
round of belt-tightening was not enough. In response, we acted to further cut
operating costs and set the fiscal 2000 capital budget 32 percent below the
prior year's level. In the fourth quarter, a personnel reduction program was
implemented, reducing total staffing by 21 percent. This employee downsizing,
although unpleasant, will save an estimated $17 million in annual operating
costs going forward. We also consolidated a number of field operations and shut
down two gas processing plants, redirecting the gas to other processing
facilities. Combined, all of these measures should allow the Company to live
within its means in fiscal 2000, barring further deterioration in energy prices.
Despite the challenging market environment, reserve additions more than
replaced gas production for an 11th straight year and oil production for the
third year in a row. Drilling in the Company's core fields, combined with
acquisitions of producing properties in East and Southeast Texas, replaced 185
percent of the total oil and gas produced. Reserves grew by 11 percent to 964
Bcf equivalent at year end. Gas production was up 4 percent from the previous
year, and oil production increased 10 percent. These gains were achieved
primarily through the drill bit.
In gas services, good progress was made to enhance the flexibility and
geographic reach of our gathering operations by integrating several systems
acquired over the last year-and-a-half with existing pipelines and plants. We
also picked up important new supplies of third-party gas along those systems and
increased total throughput by 30 percent to 554 MMcf per day of gas.
As fiscal 2000 unfolds, we are hopeful the worst is behind us. Recent signs
indicate that energy markets may have hit bottom and that a rebound is now under
way. Although economic recovery in troubled Asian countries is sluggish, it
appears that both OPEC and non-OPEC producers are committed to eliminating the
excess supply of oil through cooperative production restraint. Even a small
recovery in oil prices would mean a substantial rebound in earnings for fiscal
2000. For every $1 per barrel increase in the price of oil and an equivalent
increase in gas and NGL prices based on Btu content, almost $15 million is added
to the Company's annual net earnings.
While encouraged by the recent improvements in prices, we'll continue to
manage the Company's financial resources prudently, but with the future in mind.
Even with the significant reduction planned in capital spending,
2
<PAGE> 4
approximately $75 million, or over one-half, is earmarked for the Company's
drilling program. Drilling will be focused primarily on low-risk gas development
wells, which should keep gas production fairly level in fiscal 2000.
We currently have an undrilled development well inventory of nearly 1,000
locations. These are primarily long-lived gas opportunities in core areas on
leases held by production. This development backlog provides both a base to
maintain production during the current industry downturn and a platform from
which we can quickly step up the Company's drilling program if energy prices
improve significantly.
Approximately 450 of these locations are in the Barnett shale of North
Texas, which now appears to hold considerably more recoverable gas reserves than
once thought. Tighter density drilling and dramatically lower completion costs
are allowing us to upgrade more reserves to both the proved and probable
categories and to widen the boundaries of the present commercial "sweet spot."
We're hopeful that the cost and technology improvements realized in the Barnett
can open up new reserves in other core areas as well.
Low prices unfortunately forced us to shelve several oil-prone drilling
projects and to delay some exploratory drilling. However, we are encouraged by
the results of almost 400 square miles of 3-D seismic surveys shot in fiscal
1999. These surveys identified a large number of potential prospects, some of
which will be tested this year.
Over the long run, we have proven our ability to create shareholder value
with the drill bit and have not jeopardized the Company's value with
higher-risk, short-term growth strategies. With a broad development backlog and
attractive 3-D prospect inventory, quality gathering and processing operations
and a sound cost structure, we are well positioned to take advantage of the
inevitable upturn in energy prices.
/s/ GEORGE P. MITCHELL /s/ W. D. STEVENS
George P. Mitchell W. D. Stevens
Chairman and President and
Chief Executive Officer Chief Operating Officer
(left)
March 31, 1999
[PHOTO]
3
<PAGE> 5
EXPLORATION AND PRODUCTION
FINANCIAL HIGHLIGHTS
Year Ended January 31 (in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
REVENUES .............................................. $ 221,634 $ 262,432
========= =========
SEGMENT OPERATING EARNINGS (LOSS)
Operations ............................................ $ 9,234 $ 62,528
Unusual items
Proved property impairments ....................... (42,250) --
Personnel reduction program costs ................. (8,524) --
Water well litigation (provision) reversals ....... 4,000 (7,000)
Gain from sale of contract drilling assets ........ -- 2,382
--------- ---------
$ (37,540) $ 57,910
========= =========
CAPITAL AND EXPLORATORY EXPENDITURES,
excluding acquisitions ............................ $ 169,046 $ 185,783
========= =========
</TABLE>
NATURAL GAS SALES
Year Ended January 31
[BAR CHART]
214.1 216.2 228.5 238.2 247.6
'95 '96 '97 '98 '99
AVERAGE DAILY SALES (MMcf)
[BAR CHART]
$2.71 $2.16 $2.64 $2.47 $2.11
'95 '96 '97 '98 '99
AVERAGE PRICE (per Mcf)
Softer natural gas prices, a collapse of the crude oil market and significantly
higher outlays for three-dimensional seismic work combined to sharply lower
earnings from exploration and production in fiscal 1999. These factors were only
partly offset by increases in gas and oil production. As a result, segment
operating earnings were $9.2 million, versus $62.5 million the prior year,
excluding the effect of unusual items.
Despite the low energy price environment throughout most of fiscal 1999,
Mitchell maintained a steady development drilling program and followed through
with an expanded exploration program begun the prior year. The Company drilled
or participated in 118 development, 23 exploratory and 24 enhanced oil recovery
wells, with capital expenditures for exploration and production totaling $169
million, a 9 percent decline from prior-year levels. In addition, $71.7 million
was spent to acquire producing properties, versus $4.7 million in fiscal 1998.
For fiscal 2000, budgeted capital and exploratory spending has been reduced
by one-third, to $112 million, due to continuing low energy prices.
Approximately $75 million is earmarked for drilling (down from $107 million),
4
<PAGE> 6
with a focus on low-risk gas development wells and selective testing of
exploratory prospects identified by earlier 3-D seismic surveys. The Company
plans 102 development and 20 exploratory wells. At this level of drilling,
Mitchell expects to maintain gas production at fiscal 1999 levels.
In addition to the lower capital spending, the Company also reduced
exploration and production staffing by 21 percent and closed a satellite land
office in North Texas late in the year. These reductions, which resulted in an
$8.5 million charge in the fourth quarter, are expected to save $6 million a
year of operating costs going forward.
CRUDE OIL AND CONDENSATE SALES
Year Ended January 31
[BAR CHART]
6,300 5,400 5,500 6,200 6,800
'95 '96 '97 '98 '99
AVERAGE DAILY SALES (Bbls)
[BAR CHART]
$15.75 $16.91 $21.50 $18.50 $12.18
'95 '96 '97 '98 '99
AVERAGE PRICE (per Bbl)
OIL AND GAS SALES
Natural gas sales averaged 247.6 MMcf per day in fiscal 1999, up 4 percent from
the prior year, due mainly to production increases in the Barnett shale in North
Texas, the newly acquired Columbus field and the Pinehurst/Lake Creek fields in
Southeast Texas.
Mitchell's gas sales price for fiscal 1999 averaged $2.11 per Mcf, down 36
cents, or 15 percent, from the year-earlier level. Inventory overhangs resulting
from the "El Nino" winter of 1997-98, combined with unusually warm fall and
winter temperatures again in the 1998-99 heating season, were the main factors
behind the price decline.
Although gas prices were weaker, they held up remarkably well against other
energy products, and the long-term outlook for gas prices remains very positive.
Analysts expect total domestic gas production to decline this year as a
consequence of the sharp drilling budget cutbacks announced by most U.S.
producers. This expected reduction in supply, combined with new demand from
gas-fired electricity generating plants scheduled to come on-line soon, should
lead to firmer prices - particularly if temperatures return to normal for the
1999-2000 heating season. However, gas prices may well remain soft through this
spring as a result of the high level of inventories.
Oil production increased 10 percent to an average 6,800 barrels a day in
fiscal 1999, mainly due to higher volumes from Lake Creek, Columbus and in North
Texas. Oil volumes are expected to flatten or decline slightly this year,
however, because most of the Company's new oil projects have been delayed until
crude prices strengthen.
The Company's average oil sales price fell by $6.32, or 34 percent, to
$12.18 a barrel in fiscal 1999, a level not seen since the bust of the mid-'80s.
This latest price collapse is the result of excess production worldwide and
shrinking demand from weak economies in Asia.
EXPLORATION AND PRODUCTION
The Company replaced 195 percent of the gas it produced in fiscal 1999, with gas
reserves reaching a record 867 Bcf at January 31, up 11 percent from the
previous year. The reserve increases were due to significant additions in the
Barnett shale and to producing property acquisitions, including the Columbus
field in Colorado County and a number of properties in Limestone County in East
Texas. The Company added 121 Bcf of new gas reserves from extensions and
discoveries and 74 Bcf from acquisitions. This was the eleventh consecutive year
that Mitchell more than replaced its gas production.
5
<PAGE> 7
[PHOTO]
---------------------------------
The success of an infill drilling
program and improvements in
well completion technology
allowed Mitchell to book 100
new undeveloped well locations
in the Barnett shale.
---------------------------------
6
<PAGE> 8
The Company replaced 123 percent of the oil and condensate it produced in
fiscal 1999, with reserves ending the year at 16.2 million barrels, up 3
percent. Oil reserve additions came mainly from producing property acquisitions,
which added 2.9 million barrels.
Finding costs averaged $6.88 per barrel equivalent in fiscal 1999, up from
$4.84 the year before, due to significantly higher seismic and other exploratory
costs for prospects not yet drilled and to the timing of reserve bookings
resulting from the Company's drilling program.
DEVELOPMENT ACTIVITY
Among Mitchell's most valuable assets - one that has helped it maintain stable
production during price downturns - is an extensive backlog of development
drilling locations. These are largely low-risk gas opportunities, and the
Company continued to work that backlog in fiscal 1999.
Development drilling once again was concentrated in the Newark East
Barnett shale field in North Texas. The continued success of an infill drilling
program in this field, combined with innovations in completion technology,
allowed Mitchell to book 100 new undeveloped well locations with an estimated 84
Bcf of proved reserves. This infill drilling program - using a 50-acre spacing
pattern versus 100 - has confirmed that the Barnett has considerably more
recoverable gas reserves than once thought.
In addition, a better and cheaper method of fracturing the rock around
each well bore to enhance productivity has made many Barnett locations once
considered marginal now economic to drill. These "light sand fracture"
stimulation treatments use mostly water instead of polymer gel to crack open the
rock, and they rely on smaller quantities of sand to prop open the cracks so gas
can flow to the well bore. This new technique has reduced the cost of a
standard-sized fracture treatment by 60 percent - or roughly $140,000 per well -
and will enable the Company to apply larger treatments at minimal additional
cost to improve the productivity of these wells. This light sand technique,
applied fieldwide since October 1998, may be the key to expanding the economic
limits of the field to include Mitchell's prospective acreage northeast and
south of the current "sweet spot." This could add several hundred locations to
the Company's current undrilled backlog.
PRODUCTION REPLACED
Year Ended January 31
[BAR CHART]
171% 114% 105% 184% 195%
'95 '96 '97 '98 '99
NATURAL GAS
[BAR CHART]
57% 45% 105% 209% 123%
'95 '96 '97 '98 '99
OIL AND CONDENSATE
Last year Mitchell drilled 56 wells in the Barnett shale. This year, due
to budget limitations, 40 are planned, although the number could be increased if
conditions improve.
In East Texas, continued success in the Cotton Valley limestone drilling
program at North Personville resulted in 11 new producers and identified a
number of potential offset locations. Additional potential also was indicated
along the updip edge of the field, as well as in the shallower Travis Peak and
Cotton Valley sandstone sections as a result of a 52-square-mile 3-D survey shot
last summer. The infill potential, coupled with the prospective 3-D locations,
could offer significant new development opportunities for the field.
7
<PAGE> 9
During fiscal 1999 Mitchell also acquired other working interests in the
field and adjoining producing properties with estimated Travis Peak and Cotton
Valley sandstone reserves of 32 Bcf equivalent. Three wells were drilled and six
workovers were performed on these properties last year. For fiscal 2000, a total
of 15 new wells are planned for the North Personville area.
In a larger Southeast Texas transaction, Mitchell acquired a 99 percent
working interest in the Columbus field from Occidental Petroleum and other
working interest owners. The Company booked 57.5 Bcf equivalent of reserves from
this field in fiscal 1999, including reserves associated with 10 future drilling
locations and 34 recompletion opportunities.
Mitchell's plan to enhance productivity at Columbus is to apply some of
the same successful completion methods used at Lake Creek, including co-mingling
production from several Wilcox zones into a single completion. Previously
untested zones also will be probed in this mature field.
Since acquiring Columbus, Mitchell has completed four new wells and worked
over eight existing ones. As a result, production has increased from 3.5 MMcf
per day of gas equivalent to 12.5 MMcf currently. Six more new wells are planned
for fiscal 2000.
At Lake Creek/East Lake Creek/Pinehurst, 15 new wells were completed in
these adjoining fields in fiscal 1999. Nine are planned for fiscal 2000, all
within a 54-square-mile 3-D survey shot last year.
[PICTURE]
----------------------------------------
A Company geophysicist studies a 3-D
seismic section of the Bend Conglomerate
to identify new drilling locations in
southwest Wise County.
----------------------------------------
PRINCIPAL PRODUCING AREAS
AVERAGE DAILY SALES
Year Ended January 31
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
NATURAL GAS (NET Mcf)
North Texas ........................... 122,100 114,400
East Texas ............................ 61,500 56,200
Gulf Coast ............................ 49,700 47,700
Other ................................. 14,300 19,900
------- -------
247,600 238,200
======= =======
CRUDE OIL AND CONDENSATE (NET Bbls)
North Texas ........................... 1,700 1,500
East Texas ............................ 1,200 1,000
Gulf Coast ............................ 2,400 2,000
West Texas/New Mexico ................. 1,300 1,200
Other ................................. 200 500
------- -------
6,800 6,200
======= =======
</TABLE>
EXPLORATORY ACTIVITIES
The focus of Mitchell's exploratory efforts in fiscal 1999 was three large 3-D
surveys, two in the Gulf Coast area and one in North Texas. Based on initial
interpretations, the prospects look promising.
The 77-square-mile Cottonwood survey in Fort Bend County, which targeted
Yegua traps on trend with a successful play in Wharton County, identified as
many as 18 prospective locations. Mitchell has a 61 percent working interest in
8
<PAGE> 10
----------------------------
As part of its redevelopment
plan for the Columbus field,
acquired in mid-fiscal 1999,
Mitchell has completed eight
workovers like this one and
drilled four new wells.
----------------------------
9
<PAGE> 11
[PICTURE]
----------------------------------------
Well fracturing innovations are allowing
Mitchell to recover more gas at a lower
cost from the Barnett shale.
----------------------------------------
this shoot and holds leases and options totaling 27,000 acres. The first
Cottonwood test was a dry hole, but the Company expects to drill two additional
tests in the second half.
The 92-square-mile Franklin Ranch survey in McMullen County suggests 20
prospective drilling locations. The initial Wilcox sandstone test is expected to
be spudded in the first quarter. Mitchell has an 80 percent working interest and
controls more than 21,000 acres of leases and options in the area.
In North Texas, the 90-square-mile Frazier 3-D seismic survey was shot to
delineate additional gas development opportunities in the Caddo sandstone and
Atoka conglomerate sections. This is the third survey in this general area in
the last four years; 17 successful wells were drilled from previous surveys.
More than 50 prospective locations have been identified from this new survey, at
least 15 of which are expected to be drilled this year.
Late in the year, in a 50-50 partnership with another operator, Mitchell
also shot a 54-square-mile exploratory 3-D survey in Jefferson Davis Parish,
Louisiana, as an extension of its successful Hackberry and Yegua sandstone
exploratory play to the west in Calcasieu Parish and Orange County, Texas. The
first test in this new Pine Island survey is tentatively scheduled for the third
quarter of this year.
Mitchell's most significant single discovery last year was in State Tract
86 in Trinity Bay, located 22 miles north of Galveston. This Frio well, in which
Mitchell owns a 100 percent interest, is currently producing 14.5 MMcf of gas
per day.
At year end Mitchell had interests in 2,305 producing gas wells and 1,003
oil wells, of which 78 were productive in two or more zones. Excluding interests
held by others, Mitchell held net interests equal to 2,026 gas and 609 oil
wells, of which 66 were productive in two or more zones.
WELL COMPLETIONS(1)
Year Ended January 31, 1999
<TABLE>
<CAPTION>
Exploratory Development Total
--------------------- --------------------- ---------------------
Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North Texas ...... 75 4 2 -- 8 57 4 12 59 4
East Texas ....... 28 -- -- 1 -- 27 -- -- 27 1
Gulf Coast ....... 21 -- -- 2 1 16 2 1 16 4
West Texas ....... 32 4 -- 5 23 -- -- 27 -- 5
Other(2) ......... 9 1 -- 4 -- 1 3 1 1 7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross wells(3) ... 165 9 2 12 32 101 9 41 103 21
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Net wells ........ 120.5 4.2 2.0 5.5 12.3 90.3 6.2 16.5 92.3 11.7
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- -----------------
(1) Excludes service wells.
(2) Includes Louisiana, New Mexico, Mississippi, Oklahoma and Wyoming.
(3) An additional 15 wells (12.0 net wells) were in progress at January 31,
1999.
10
<PAGE> 12
LEASEHOLDINGS
At January 31, 1999
<TABLE>
<CAPTION>
Gross Net
Acres Acres
--------- -------
<S> <C> <C>
Alabama ................................ 25,100 17,200
Louisiana .............................. 31,700 28,200
Mississippi ............................ 28,800 11,800
New Mexico ............................. 14,900 13,400
Ohio ................................... 23,600 23,500
South Dakota ........................... 46,100 13,400
Texas .................................. 366,000 268,600
Utah ................................... 22,900 11,900
Other* ................................. 28,700 18,900
--------- -------
Total undeveloped acreage .............. 587,800 406,900
Producing acreage ...................... 779,400 579,500
--------- -------
Total acreage .......................... 1,367,200 986,400
========= =======
</TABLE>
- ----------
* Includes Colorado, Michigan and Oklahoma.
[PICTURE]
-------------------------------------
Roughnecks prepare to run a new stand
of pipe at a drilling location at Lake
Creek in Montgomery County, Texas.
-------------------------------------
MAJOR AREAS OF OPERATION
[MAP]
11
<PAGE> 13
GAS SERVICES
FINANCIAL HIGHLIGHTS
Year Ended January 31 (in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
REVENUES
Natural gas processing ......................... $ 253,295 $ 329,990
Natural gas gathering and marketing ............ 211,387 183,554
Other .......................................... 15,074 14,526
--------- ---------
$ 479,756 $ 528,070
========= =========
SEGMENT OPERATING EARNINGS (LOSS)
Natural gas processing ......................... $ (2,083) $ 28,330
Natural gas gathering and marketing ............ 23,483 21,982
Other .......................................... 13,949 13,192
--------- ---------
35,349 63,504
Unusual items
Personnel reduction program costs .......... (7,128) --
Asset write-downs .......................... (7,560) --
Royalty litigation settlement provision .... -- (26,000)
--------- ---------
$ 20,661 $ 37,504
========= =========
CAPITAL EXPENDITURES,
excluding acquisitions ..................... $ 28,822 $ 41,041
========= =========
</TABLE>
NATURAL GAS LIQUIDS PRODUCED
Year Ended January 31
[BAR CHART]
43,400 44,500 46,100 45,300 41,100
'95* '96* '97 '98 '99
AVERAGE DAILY PRODUCTION (Bbls)
* Excludes plants sold in 1995 and 1996.
[BAR CHART]
$11.57 $11.55 $16.13 $13.38 $10.23
'95 '96 '97 '98 '99
AVERAGE PRICE (per Bbl)
While gas gathering and marketing earnings benefited from higher throughput
volumes, gas processing results were adversely impacted by the lowest processing
margins in 20 years. As a result, gas services operating earnings before unusual
items declined to $35.3 million in fiscal 1999 from $63.5 million in the prior
year.
The Company reacted quickly to the downturn in its processing business,
taking actions to lower its cost structure and conserve cash flows. One of its
first responses was to postpone planned expansions and non-essential projects,
cutting capital expenditures during fiscal 1999 to $28.8 million, from $41
million in the prior year. The capital budget has been reduced further to $21
million for the current year, a level sufficient to fund new well connections
and necessary maintenance projects.
In addition to the lower capital spending, the Company reduced gas
services staffing by 21 percent late in the year. This resulted in a $7.1
million charge in the fourth quarter and will save $6 million in annual
operating costs. Other actions
12
<PAGE> 14
included the consolidation of processing activities resulting in the shutdown of
several plants, a tripling to 8,000 barrels per day of the Bridgeport plant's
ability to reject ethane when it has more value as a gas, and the outsourcing of
29,000 horsepower of compression in North Texas. These actions and others to be
taken in fiscal 2000 will significantly reduce the Company's operating and
production costs and provide a sound platform for future growth.
VOLUMES AND PRICES
The Company increased its pipeline throughput by 30 percent to 554 MMcf per day
during the year, marking the fifth consecutive yearly increase in gas
throughput. The current year increase was due to the acquisition of the
Bridgeport gathering system in January 1998 as part of the 1995 contract
settlement with Natural Gas Pipeline Company of America. This system added 160
MMcf per day to total throughput.
The average pipeline gross margin decreased to 19 cents per Mcf from 25
cents per Mcf in the prior year, largely because of the change in mix between
sales and transportation volumes. The additional volumes from the Bridgeport
gathering system are transported at relatively lower rates.
Natural gas liquids production averaged 41,100 barrels per day in fiscal
1999, down 9 percent from the prior year. This decline was primarily due to
reduced ethane production when its market value was greater as a gas than as a
liquid and the periodic decision not to process certain gas volumes because of
uneconomical margins. Daily production is expected to return to the 45,000
barrel range when gas processing margins improve.
[PICTURE]
------------------------------------
A welder completes a link between
the Perkins gathering system in West
Texas and the Jameson gathering
system to improve asset utilization
and reduce operating costs.
------------------------------------
PIPELINE THROUGHPUT
Year Ended January 31 (MMcf per day)
[BAR CHART]
353 354 410 426 554
'95* '96 '97 '98 '99
* Excludes Winnie system, sold in 1995.
Mitchell's NGL reserves at the end of fiscal 1999 were down 5 percent to
139 million barrels. The decline was attributable to the removal of 9 million
barrels from the reserve base which would be uneconomical to recover in the
future using the unusually low year-end NGL prices. These reserves will be added
back to the Company's reserve base when NGL prices improve.
The Company's average NGL price dropped 24 percent in fiscal 1999 to
$10.23 per barrel, primarily due to the worldwide collapse in oil prices. NGL
prices closely track oil because NGLs compete with oil-based products as
petrochemical feedstocks. In addition, NGL prices were adversely affected by
weak petrochemical demand associated with the Asian economic crisis and high
propane inventories resulting from two consecutive extremely mild winters and
higher imports.
Because gas prices held up well most of the year, the "frac spread" the
difference between the sales price of liquids and the cost of natural gas for
fuel and shrinkage - declined an even more dramatic 45 percent year over year to
$2.87 per barrel. This compares with an average spread of $5.58 over the past 15
years.
OPERATIONS
Mitchell strengthened its position in key areas through the acquisition of
complementary gathering systems, which added volumes for both gas processing and
residue gas sales. The Company also moved aggressively to consolidate
13
<PAGE> 15
field operations and to integrate newly acquired systems into existing systems.
This increased asset utilization rates, eliminated redundant facilities and
reduced operating costs.
SOUTHEAST TEXAS
Mitchell strengthened its gathering, processing and marketing operations in
Southeast Texas, using the Exxon Katy plant for processing and the Katy Hub for
gas sales. The Katy plant is one of the largest gas processing plants in the
U.S., and Katy is one of the largest market hubs in Texas. Mitchell has a
favorable gas processing contract, and the plant has excess processing capacity
to handle future growth in this area.
[PICTURE]
------------------------------------
The Tri-County plant in Washington
County treats natural gas from the
Austin Chalk in South Central Texas.
------------------------------------
At year end, deliveries from Mitchell-operated pipelines to the inlet of
the Katy plant totaled 130 MMcf per day, more than double the prior-year level.
Mitchell-operated pipelines are now one of the largest suppliers of natural gas
to the Katy plant, accounting for about 80 percent of that plant's NGL
production.
A pipeline connecting the Vanderbilt system to the Katy plant was
completed in May 1998, and volumes on the system have increased from less than 5
MMcf per day to 25 MMcf per day currently. The Katy connection gives the Company
a greater ability to compete for existing gas supplies and new gas from active
drilling in the Wilcox and Yegua trends to the south.
The Monco system continues to benefit from the Company's increased
drilling activity in the Lake Creek, East Lake Creek and Pinehurst fields at the
northern end of the system and by other producers throughout the system. At the
southern end of the system, in Colorado County, two systems were acquired during
the year, adding 37 miles of pipeline and a long-term dedication of acreage by
an active third-party producer. The Company is pursuing additional gas supplies
in Colorado County and may extend Monco to the recently acquired Columbus field.
Rich gas volumes in the Austin Chalk area northwest of Houston declined by
21 percent during fiscal 1999, but are expected to remain stable this year
because of planned third-party drilling and recompletion activities. Due to
economic considerations and lower volumes, the remaining gas processing plant in
this area was shut down late in the year, and the volumes were redirected to the
Katy plant and the Company's Madison plant. This reduced fixed operating costs
in the Austin Chalk by utilizing available capacity at these plants. In addition
to the cost savings, the market prices received for both gas and natural gas
liquids are relatively higher at Katy.
A five-mile 16-inch extension of the Ferguson-Burleson gathering system in
the Austin Chalk area was completed in fiscal 1999. This extended that line to
the Brenham Dome area of Washington County where there is an active three-rig
drilling program and from which approximately 80 MMcf per day was being
transported at year end.
NORTH TEXAS
During fiscal 1999, additional interconnections were completed between the
Bridgeport gathering system and the North Texas system, continuing the process
of integrating the two systems. This optimizes gas flow on the systems, which
reduces operating expenses, field compression and fuel consumption and improves
utilization of Mitchell's four processing plants in the area.
14
<PAGE> 16
[PHOTO]
-------------------------------
A 16-mile interconnection
from the Vanderbilt system
to the Exxon Katy plant was
completed in May 1998,
giving Mitchell greater ability
to compete for new gas from
active drilling in the Wilcox
and Yegua trends.
-------------------------------
15
<PAGE> 17
--------------------------------------
The Company's Bridgeport processing
plant located in North Texas has the
daily capacity to process 210 million
cubic feet of natural gas and produce
20,000 barrels of natural gas liquids.
--------------------------------------
[PICTURE]
The 330-mile Fort Worth Basin system, acquired from Tejas in December
1997, was successfully integrated into the Company's North Texas system. This
resulted in the closing of an under-utilized processing plant and added
marketing flexibility for gas sales in the area. In addition, this acquisition
included a favorable gas sales contract which should attract new gas supplies.
[PICTURE]
--------------------------------------
Mitchell owns interests in an MTBE
gasoline additive plant and Gulf Coast
Fractionators (above), both located in
Mont Belvieu, Texas. Earnings from
these fee-based facilities increased
6 percent in fiscal 1999.
--------------------------------------
WEST TEXAS
Acquisition of the 1,670-mile Perkins gathering system was completed in March
1998 by C&L Processors, a 50/50 partnership owned by Mitchell and Conoco. Rich
gas gathered by this system was redirected to load the partnership's Jameson
processing plant, increasing the Company's share of NGL production at Jameson by
1,400 barrels per day. Since the Jameson plant has on-site fractionation
facilities, it realizes a higher margin for local propane and butane sales.
Consolidation of the Jameson and Perkins systems eliminated redundant
compression facilities and reduced the two systems' combined field personnel to
65 from 85. Annual operating expenses in the area were reduced by $1 million, or
approximately 10 percent.
OTHER
The Company's downstream operations in Mont Belvieu, Texas, consist of a
one-third interest in a world-scale MTBE gasoline additive plant and a 38.75
percent interest in an NGL fractionator. The MTBE plant had record production
levels of 14,600 barrels per day in fiscal 1999, while fractionator volumes were
steady at 99,400 barrels per day. Operating earnings from these facilities
totaled $13.9 million in fiscal 1999, up 6 percent from the prior year.
16
<PAGE> 18
Mitchell Energy & Development Corp. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
The discussion which follows includes forward-looking statements. Reference is
made to the inside front cover of this report for information concerning these
statements, including factors that could cause actual results to differ
materially from those in the forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. The downward trend in energy prices was the primary driver affecting
the Company's financial results in fiscal 1999. The following table shows the
Company's average sales prices during the past three fiscal years:
<TABLE>
<CAPTION>
CRUDE OIL AND
NATURAL GAS (PER Mcf) CONDENSATE (PER Bbl) NGLs (PER Bbl)
------------------------ ------------------------ ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter ..... $ 2.29 $ 2.23 $ 2.27 $13.93 $19.99 $19.45 $11.44 $13.46 $14.15
Second quarter .... 2.25 2.24 2.40 12.33 18.48 20.28 10.22 12.76 13.62
Third quarter ..... 1.90 2.66 2.21 12.22 18.89 22.62 9.79 14.33 16.55
Fourth quarter .... 1.99 2.71 3.65 10.25 17.02 23.39 9.27 12.93 19.97
Fiscal year ....... 2.11 2.47 2.64 12.18 18.50 21.50 10.23 13.38 16.13
</TABLE>
During fiscal 1997's fourth quarter, prices rose to levels not seen in many
years. Then after remaining relatively stable in fiscal 1998, they fell
throughout fiscal 1999 to low points not seen for oil and NGLs since 1986. The
depressed NGL prices, coupled with the relatively higher natural gas prices,
caused the Company's normally very profitable gas processing activities to
report segment operating losses for the second, third and fourth quarters of
fiscal 1999. The depressed energy price environment led to fiscal 1999 fourth
quarter impairments of certain oil and gas proved properties - primarily oil
fields - and gas services assets.
After falling further early in fiscal 2000, oil and NGL prices began to
recover somewhat in March because of announced production cutbacks by several
major oil producing countries. Whether these price increases will hold is not
known.
The Company's activities have consisted exclusively of energy operations
since its sale of The Woodlands Corporation (TWC) in July 1997. While the
Company's operating plans are not generally modified in response to
normal volatility in energy prices, the downward price swings were so extreme
in recent periods that they could not be ignored. Accordingly, after using a
substantial portion of the TWC sales proceeds to grow its energy businesses
early in fiscal 1999, the Company began to sharply curtail capital spending in
the second half of the year and to take steps to reduce operating costs,
including a personnel reduction program at year's end. These actions were taken
to enhance the Company's profitability and to bring its cash outflows more in
line with its price-dampened revenues and thereby mitigate the need for
incremental borrowings going forward.
The Company believes that it has positioned itself to withstand a continued
period of low energy prices. Even with its reduced capital budget, the Company
expects to maintain its production volumes for natural gas and oil and to
replace the reserves it will produce in fiscal 2000. The nature of the Company's
gas and oil properties allows it to quickly adjust its capital spending levels
either upward or downward. With its large backlog of 1,000 undrilled well
locations, the Company's drilling program can be quickly increased to add to its
production capabilities should improved prices make this advisable.
17
<PAGE> 19
CAPITAL AND EXPLORATORY EXPENDITURES. The following table, which excludes
expenditures for discontinued real estate operations, compares the Company's
fiscal 2000 budget for capital and exploratory expenditures with its actual
expenditures during fiscal 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
2000 Budget 1999 1998
--------------- --------------------------------- ---------------
First Last Total
Amount % Half Half Amount % Amount %
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploration and production ... $112.4 82.5 $109.3 $ 59.7 $169.0 84.4 $185.8 80.1
Gas services ................. 21.0 15.4 18.7 10.1 28.8 14.4 41.0 17.7
Corporate .................... 2.8 2.1 1.3 1.0 2.3 1.2 5.2 2.2
------ ------ ------ ------ ------ ------ ------ ------
$136.2 100.0 129.3 70.8 200.1 100.0 232.0 100.0
====== ====== ====== ======
Asset acquisitions
Exploration and production.................. 67.6 4.1 71.7 4.7
Gas services................................ 13.3 4.3 17.6 21.6
------ ------ ------ ------
$210.2 $ 79.2 $289.4 $258.3
====== ====== ====== ======
</TABLE>
The fiscal 1999 budget - originally set at $241 million - called for the
continuation of an accelerated program to drill the Company's substantial
inventory of development locations in its core areas. In addition, significant
expenditures were included for 3-D seismic work, exploratory acreage purchases
and exploratory drilling. More than 90% of the budgeted fiscal 1999 spending for
seismic surveys was incurred in the first half, as dry weather and the
availability of crews and equipment allowed an acceleration of the planned
schedule.
Because of declining energy prices, the Company reassessed its fiscal 1999
capital spending plans at mid-year. With no near-term recovery in sight for
energy prices, the budget was reduced by $29.7 million (12%) to $211.3 million.
Actual spending for the year - excluding acquisitions - totaled $200.1 million,
5% below the revised budget.
The Company's fiscal 2000 budget was set at $136.2 million, 32% below the
$200.1 million spent in the prior year and roughly in line with the reduced
spending pace adopted for fiscal 1999's last half. Of the exploration and
production budget, approximately $75 million is planned for drilling primarily
low-risk gas development wells. The gas services planned spending is limited
almost exclusively to new well connections to maintain pipeline throughput and
gathering system and processing plant improvement projects.
PERSONNEL COST REDUCTION PROGRAM. As a result of the program announced in
December 1998, 235 positions were eliminated, reducing the Company's full-time
employment level by 21% to approximately 875. Annual salary and benefits costs
were reduced by approximately $17 million. Most of the $24.5 million in costs
associated with the program will be paid by previously funded retirement plans
or over an extended period as incremental retiree medical benefits.
Consequently, current cash costs totaled only approximately $7 million. See Note
10 of Notes to Consolidated Financial Statements for additional information.
FINANCING MATTERS. As previously reported, the Company discontinued its real
estate activities during fiscal 1998 and realized $481 million of after-tax
proceeds from the TWC sale. During the first quarter of fiscal 1999, the Company
essentially completed the disposition of the discontinued operations by selling
most of the remaining properties outside The Woodlands.
A balanced plan was implemented to reinvest the TWC sales proceeds as quickly
as practical, consistent with the Company's objective of growing its core energy
businesses in a prudent manner. This reinvestment program was completed during
fiscal 1999's first quarter, and the table on the following page summarizes the
uses of those proceeds (dollars in millions):
18
<PAGE> 20
<TABLE>
<CAPTION>
Fiscal Fiscal
1999 1998 Total
------ ------ ------
<S> <C> <C> <C>
Acquisitions ................................................................... $ 64.7 $ 26.3 $ 91.0
Fiscal 1999 capital expenditures in excess of funds from operations ............ 23.0 -- 23.0
Accelerated fiscal 1998 capital spending (primarily for oil and gas
exploratory activities) ...................................................... -- 24.0 24.0
Common stock purchases
Accelerated buyback (700,000 Class A and 1,400,000 Class B shares) ........... 7.5 49.7 57.2
Open-market purchases (45,000 Class A and 884,200 Class B shares) ............ 1.8 22.7 24.5
Repurchase of 9 1/4% senior notes (including $19.3 for tender offer costs and
expenses) .................................................................... -- 205.0 205.0
Repayment of off-balance-sheet partnership indebtedness ........................ -- 43.8 43.8
December 1997 special common stock dividends
(24 cents on Class A and 26.5 cents on Class B) .............................. -- 12.5 12.5
------ ------ ------
$ 97.0 $384.0 $481.0
====== ====== ======
</TABLE>
The fiscal 1998 amounts were discussed in the Company's Fiscal 1998 Annual
Report. The fiscal 1999 spending was directed almost exclusively toward
expanding the Company's core energy operations via acquisitions and a stepped-up
exploratory program.
After reinvesting the remaining proceeds from the TWC sale during fiscal
1999's first quarter, the Company began using borrowings under bank credit
agreements and proceeds from an agreement pursuant to which energy accounts
receivable are sold to a third party to fund portions of its ongoing capital
program. Entering into the receivable sales agreement eliminated the need to
fund the Company's receivables with bank borrowings and lowered its costs.
Because of sales under this agreement, the Company's working capital at January
31, 1999 was approximately $50 million less than it otherwise would have been.
The parent company has a $25 million bank money-market facility and entered
into a five-year $250 million bank revolving credit agreement in July 1998,
replacing a $150 million facility of a subsidiary. Borrowings of $48.2 million
were outstanding under these bank credit facilities at January 31, 1999. Of the
Company's outstanding debt, $100 million of 8% senior notes mature on July 15,
1999. The Company has not decided whether it will fund the repayment of the
maturing senior notes by selling additional senior notes or by borrowing under
the bank credit agreement.
NORTH TEXAS WATER WELL LITIGATION. See Note 7 of Notes to Unaudited Consolidated
Financial Statements for information concerning this litigation and recoveries
of defense costs under agreements with the Company's insurance carriers.
Reimbursement agreements were reached with two additional carriers late in March
1999, and negotiations continue with other carriers which hopefully will be
concluded successfully during fiscal 2000.
DIVIDEND POLICY. The Company has paid regular quarterly cash dividends on its
common stock for an uninterrupted period of 20 years. Annual regular dividends
totaling 48 cents and 53 cents per share, respectively, have been paid on the
Company's Class A and Class B common stock since fiscal 1994.
DISCLOSURES ABOUT MARKET RISK. The Company's major market risk exposure involves
prices for crude oil, natural gas and NGLs. Realized prices for these products
are driven primarily by prevailing world crude oil prices and domestic natural
gas prices. Such prices have historically been volatile (see the table on page
17, for example), and this is expected to continue. In general, a $1.00 change
in the per-barrel price of oil, together with an equivalent change in the prices
for natural gas and NGLs based on Btu content (16 cents for gas and 67 cents for
NGLs), changes the Company's annual segment operating earnings and cash flows by
approximately $23 million and its after-tax annual net earnings by almost $15
million.
19
<PAGE> 21
The Company has a "natural" hedge in that while it is a seller of natural
gas, it also purchases natural gas in connection with its gas processing
operations (such purchases equal approximately 40% of gas sales). Also, it
infrequently enters into hedging activities to manage certain exposures to price
fluctuations. The Company does not hold or issue derivative instruments for
trading purposes. It had no open hedging positions at January 31, 1999, and its
hedging activity during the last three years was not significant.
The Company's interest rate risk exposure is minimal since almost 90% of its
outstanding debt at January 31, 1999 consisted of senior notes with fixed
interest rates. Of these notes, $100 million mature in July 1999, and the
Company has not decided whether they will be refunded using fixed- or
floating-rate debt.
YEAR 2000 ISSUE. Like others, the Company is facing computer systems problems
caused by the approaching turn of the century, which has been dubbed the "Year
2000 problem." In addition to affecting mainframe and mid-range computer
systems, this problem potentially impacts computer chips integrated into
security, plant automation and pipeline control systems. Beginning in late 1996,
the Company conducted a study to determine the Year 2000 readiness of its
mainframe and mid-range financial and operating systems and established a
timetable for reprogramming, replacing and testing these systems to see that
they properly recognize dates subsequent to December 31, 1999. The Company's
schedule, which calls for these efforts to be completed by July 31, 1999, is
currently being met. Since this work is being accomplished principally by
reallocating internal resources, this effort is not expected to significantly
impact the Company's results of operations or cash flows. Through January 31,
1999, third party costs totaling $560,000 had been incurred in this regard out
of total estimated costs of $1.1 million.
During August 1998, the Company completed an inventory of embedded chips
integrated into its security, plant automation and pipeline control systems. As
part of this process, the Company has ranked the facilities containing embedded
chips in order of importance and has begun contacting equipment vendors to
determine the steps that will be necessary to make the equipment in which they
are installed capable of properly recognizing dates after December 31, 1999.
Testing of the facilities categorized as important is scheduled to be completed
by April 30, 1999. Third party costs generally are not being incurred in
connection with these efforts.
Through communications with industry partners and others, the Company is also
evaluating the risks presented by potential Year 2000 non-compliance of third
parties. Since such risks vary substantially, companies are being contacted
based on the estimated magnitude of the risk posed to the Company by their
potential Year 2000 non-compliance. The Company is currently not aware of any
situations where material disruptions of its business activities are likely
because of the Year 2000 non-compliance of third parties.
The timetable for the Company's planned completion of its own Year 2000
modifications and the estimated costs to accomplish this are management's best
estimates. These assessments involve many assumptions concerning future events,
including the continued availability of certain resources, particularly
personnel able to locate, reprogram or replace, and test the Company's hardware
and software in accordance with the Company's established schedule. There can be
no guarantee that the Company's estimates will prove accurate, and actual
results could differ significantly from the estimates. Finally, there can be no
guarantee that the Year 2000 non-compliance of third parties of business
importance to the Company will not adversely affect its operations in a future
period. Although it is not currently aware of any such situations, the Company
is developing contingency plans to alter business relationships in the event of
such non-compliance.
ENVIRONMENTAL MATTERS. Concern for the environment has been a fundamental part
of the Company's operating philosophy for many years. In the ordinary course of
conducting its business, the Company incurs costs - both expensed and
capitalized - to preserve and protect the environment. As public concern for the
environment has grown, new environmental laws have been enacted, more stringent
regulations have been implemented and enforcement of
20
<PAGE> 22
existing controls has been strengthened. The Company considers the cost of
environmental protection a necessary and manageable part of its business. To
date, the Company has not been faced with major cleanup obligations and has been
able to conform with environmental regulations without materially altering its
operating strategies.
Over the next two or three years, the Company estimates that its expenditures
to comply with environmental regulations will total approximately $5.7 million
per year. These costs consist principally of third-party charges for water and
waste disposal associated with oil and gas wells but also include non-routine
expenses for remediation of old sites, storm water control projects and emission
controls. Expenditures for the compliance assurance monitoring requirements of
the Federal Clean Air Act Amendments of 1990 could add another $1 million in
costs when compliance with those regulations is required, which is not expected
to occur before January 1, 2002.
While it is not possible to fully anticipate all of the financial obligations
or operating constraints that might ultimately result from increasingly
stringent environmental regulations and enforcement programs, management
believes the Company is well-positioned within the industries in which it
competes to deal with environmental protection requirements. Furthermore, demand
for clean-burning natural gas, the cornerstone of the Company's energy
operations, is likely to benefit from increasing environmental awareness.
OPERATING STATISTICS
Certain operating statistics (including, where applicable, proportional
interests in equity partnerships) for fiscal 1999, 1998 and 1997 follow:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) ...................... 247,600 238,200 228,500
Crude oil and condensate sales (Bbls) ........ 6,800 6,200 5,500
Natural gas liquids produced (Bbls) .......... 41,100 45,300 46,100
Pipeline throughput (Mcf) .................... 554,000* 426,000 410,000
AVERAGE SALES PRICES
Natural gas (per Mcf) ........................ $ 2.11 $ 2.47 $ 2.64
Crude oil and condensate (per Bbl) ........... 12.18 18.50 21.50
Natural gas liquids produced (per Bbl) ....... 10.23 13.38 16.13
</TABLE>
- ----------
* Includes 160,000 for North Texas gathering system acquired effective
January 1, 1998.
QUARTERLY STOCK DATA
(per-share amounts)
<TABLE>
<CAPTION>
Market Price Range
--------------------------------------
Class A Class B Cash Dividends
----------------- ----------------- ----------------
High Low High Low Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1999
First ............. $ 28.25 $ 24.56 $ 28.50 $ 24.38 $ .12 $ .1325
Second ............ 25.25 18.31 25.38 18.00 .12 .1325
Third ............. 18.06 10.94 18.00 12.06 .12 .1325
Fourth ............ 14.94 9.63 15.25 9.88 .12 .1325
FISCAL 1998
First ............. $ 23.63 $ 18.25 $ 23.50 $ 18.75 $ .12 $ .1325
Second ............ 24.06 19.13 24.13 18.75 .12 .1325
Third ............. 29.75 22.75 29.50 23.44 .12 .1325
Fourth ............ 29.63 25.25 29.38 25.06 .36* .3975*
</TABLE>
- ----------
* Includes special dividends (24 cents on Class A and 26.5 cents on Class B).
21
<PAGE> 23
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED WITH FISCAL 1998
OVERVIEW. Earnings from continuing operations for fiscal 1999 and 1998 - both
before and after unusual items - are summarized in the table which follows. The
Company incurred a loss of $53 million from continuing operations during fiscal
1999, which compared with the prior year's earnings of $37.8 million. Excluding
the effects of unusual items in both years, fiscal 1999's loss was $8.5 million,
versus earnings of $57.5 million in fiscal 1998. The earnings decline was
primarily caused by lower energy sales prices, increased interest expense
attributable to continuing operations and reduced interest income on excess cash
balances. The following table and discussion identify and explain the major
increases (decreases) in earnings (in millions):
<TABLE>
<CAPTION>
Segment Earnings from Cont-
Operating Earnings inuing Operations
-------------------- -------------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
---------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
FISCAL 1998 AMOUNTS AFTER UNUSUAL ITEMS ............................ $ 57.9 $ 37.5 $(44.7) $ 50.7 $ 37.8
ELIMINATE IMPACT OF FISCAL 1998 UNUSUAL ITEMS
(see bottom section of table on page 24) ....................... 4.6 26.0 -- 30.6 19.7
------ ------ ------ ------ ------
FISCAL 1998 AMOUNTS BEFORE UNUSUAL ITEMS ........................... 62.5 63.5 (44.7) 81.3 57.5
------ ------ ------ ------ ------
MAJOR INCREASES (DECREASES)
Lower natural gas sales price ...................................... (31.3) -- -- (31.3) (20.3)
Lower crude oil and condensate sales price ......................... (14.9) -- -- (14.9) (9.7)
Higher natural gas sales volumes ................................... 3.5 -- -- 3.5 2.3
Higher oil and condensate sales volumes ............................ 2.8 -- -- 2.8 1.8
Increased geological and geophysical expenses ...................... (4.5) -- -- (4.5) (2.9)
Higher DD&A rate ($.89 versus $.84 per equivalent Mcf produced) .... (5.6) -- -- (5.6) (3.6)
Price-related decreases in NGL margins ............................. -- (22.9) -- (22.9) (15.0)
Lower NGL volumes .................................................. -- (3.6) -- (3.6) (2.3)
Gain from a partnership's sale of the
Brooks-Hidalgo gathering system ................................ -- 3.5 -- 3.5 2.3
Depreciation expense on North Texas
gathering system acquired in January 1998 ...................... -- (1.8) -- (1.8) (1.2)
Increased interest expense attributable to continuing operations ... -- (7.7) (7.7) (5.0)
Interest income on excess cash balances ............................ -- -- (8.0) (8.0) (5.2)
Performance unit expense accruals .................................. (.8) (.4) (.4) (1.6) (1.0)
Fiscal 1998 state income tax credit (see page 26) .................. -- -- -- -- (3.7)
Other, net ......................................................... (2.5) (3.0) 2.0 (3.5) (2.5)
------ ------ ------ ------ ------
(53.3) (28.2) (14.1) (95.6) (66.0)
------ ------ ------ ------ ------
FISCAL 1999 AMOUNTS BEFORE UNUSUAL ITEMS ........................... 9.2 35.3 (58.8) (14.3) (8.5)
------ ------ ------ ------ ------
See
Page
FISCAL 1999 UNUSUAL ITEMS ----
Proved property impairments ................................... 41 (42.2) -- -- (42.2) (26.4)
Personnel reduction program costs ............................. 41 (8.5) (7.1) (8.9) (24.5) (15.7)
Gas services asset write-downs ................................ 41 -- (7.6) -- (7.6) (4.9)
Water well litigation provision reversals ..................... 35 4.0 -- -- 4.0 2.5
------ ------ ------ ------ ------
(46.7) (14.7) (8.9) (70.3) (44.5)
------ ------ ------ ------ ------
FISCAL 1999 AMOUNTS AFTER UNUSUAL ITEMS ............................ $(37.5) $ 20.6 $(67.7) $(84.6) $(53.0)
====== ====== ====== ====== ======
</TABLE>
- ----------
* Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW. Exclusive of unusual items, exploration and
production fiscal 1999 segment operating earnings of $9.2 million were sharply
lower than the $62.5 million of the prior year primarily because of the current
period's lower prices for natural gas and oil and condensate sales. Daily
natural gas production increased 4% during fiscal 1999, to a record 247.6 MMcf,
and oil and condensate production increased 10% to 6,800 barrels per day.
22
<PAGE> 24
Lower natural gas sales price ($31.3 million decrease). The Company's natural
gas sales price averaged $2.11 per Mcf in fiscal 1999, $.36 (15%) below the
$2.47 realized in the prior year, reducing operating earnings by $31.3 million.
As shown by the table on page 17, natural gas prices were substantially higher
in the last half of the prior year than they were in fiscal 1999.
Lower oil and condensate sales price ($14.9 million decrease). The Company's
sales price for oil and condensate averaged $12.18 per barrel during fiscal
1999, down sharply from the prior year's $18.50, reducing operating earnings by
$14.9 million. The collapse in world oil prices was largely the result of
overproduction, very mild weather in the U.S. the last two winters and an
economic downturn in Southeast Asia and other parts of the world.
Higher natural gas sales volumes ($3.5 million increase). Natural gas sales
volumes averaged 247.6 MMcf per day during fiscal 1999, up from 238.2 MMcf
during the prior year, increasing operating earnings by $3.5 million. This
increase was principally due to drilling and recompletion activity in North
Texas, Limestone County, the Lake Creek field and the Columbus field - which was
purchased during fiscal 1999's first quarter.
Higher oil and condensate sales volumes ($2.8 million increase). Fiscal 1999's
production of oil and condensate increased 600 barrels per day to 6,800,
increasing operating earnings by $2.8 million. This resulted largely from fiscal
1998 drilling and recompletion activity in Throckmorton County (North Texas),
the Lake Creek field (Southeast Texas) and Calcasieu Parish (Southwest
Louisiana), much of which resulted from the Company's earlier 3-D seismic
surveys. Drilling and recompletions in the Columbus field during fiscal 1999
also contributed to this increase.
Increased geological and geophysical expenses ($4.5 million decrease). Largely
because of a planned increase in 3-D exploratory seismic survey expenditures,
the Company incurred $4.5 million more in geological and geophysical expenses in
fiscal 1999. Fiscal 1999's activity included surveys in McMullen County, Texas
(Franklin Ranch area), Wise County, Texas (Frazier area) and Throckmorton
County, Texas (McCluskey area). While such expenditures reduce current earnings,
it is believed that they will make important contributions to the Company's
longer-term results.
GAS SERVICES OVERVIEW. Gas services operating earnings declined $28.2 million
(to $35.3 million) during fiscal 1999 principally because of price-related
reductions in gas processing margins and volumes. NGL production averaged 41,100
barrels per day, down 9% from fiscal 1998's 45,300. The production decline was
largely the result of decisions not to recover ethane or to process certain
natural gas volumes when these actions increased the Company's overall
profitability.
Price-related decreases in NGL margins ($22.9 million decrease). The average
price for NGLs produced during fiscal 1999 of $10.23 per barrel was 24% below
the prior year's $13.38, reducing NGL revenues by $47.4 million. Because of the
impact of the lower NGL and natural gas prices on producer payments, feedstock
costs also declined, reducing the net margin decline to $22.9 million.
OTHER
Interest expense attributable to continuing operations ($7.7 million decrease).
Because a portion of the proceeds from the sale of The Woodlands Corporation
(TWC) was reinvested in continuing operations rather than being used to retire
debt related to discontinued operations, interest expense attributable to
continuing operations rose by $7.7 million during fiscal 1999. Total interest
expense - including that attributable to discontinued operations - declined by
$7.5 million largely because of the repurchase during fiscal 1998's third
quarter of $185.7 million of 9 1/4% senior notes.
Performance unit expense accruals ($1.6 million decrease). In December 1997, the
Company awarded performance units to mid-level managerial and professional
employees. Holders of these units on March 31, 1999 will receive cash
compensation equal to the closing price of the Company's Class B Common Stock on
that date times the number of units awarded to them. Compensation expense -
which was $1.6 million higher in fiscal 1999 ($2.4 million versus $.8 million) -
is being accrued ratably over the units' 15.5-month life.
23
<PAGE> 25
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED WITH FISCAL 1997
OVERVIEW. The Company's earnings from continuing operations for fiscal 1998 and
1997 - both before and after unusual items - are summarized in the table which
follows. Largely because of lower energy prices, earnings from continuing
operations for fiscal 1998 of $37.8 million were $48.5 million below those of
the prior year. Excluding the impact of unusual items, such earnings totaled
$57.5 million in fiscal 1998, down $29.2 million from fiscal 1997's $86.7
million. The following table and discussion identify and explain the major
increases (decreases) in earnings (in millions):
<TABLE>
<CAPTION>
Segment Earnings from Con-
Operating Earnings tinuing Operations
-------------------- -----------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
---------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1997 AMOUNTS AFTER UNUSUAL ITEMS ................................. $ 80.8 $108.1 $(55.1) $133.8 $ 86.3
------ ------ ------ ------ ------
See
Page
ELIMINATE IMPACT OF FISCAL 1997 UNUSUAL ITEMS ----
Water well litigation provision ............................... 35 (10.0) -- -- (10.0) (6.2)
Severance tax refunds ......................................... 42 5.9 -- -- 5.9 3.7
Columbia Gas contract settlement proceeds ..................... 42 3.5 -- -- 3.5 2.1
------ ------ ------ ------ ------
(.6) -- -- (.6) (.4)
------ ------ ------ ------ ------
FISCAL 1997 AMOUNTS BEFORE UNUSUAL ITEMS .................................... 81.4 108.1 (55.1) 134.4 86.7
------ ------ ------ ------ ------
MAJOR INCREASES (DECREASES)
Lower natural gas sales price ............................................... (13.3) -- -- (13.3) (8.6)
Lower crude oil and condensate sales price .................................. (6.5) -- -- (6.5) (4.2)
Higher natural gas sales volumes ............................................ 3.7 -- -- 3.7 2.4
Higher oil and condensate sales volumes ..................................... 3.6 -- -- 3.6 2.3
Increased geological and geophysical expenses ............................... (6.6) -- -- (6.6) (4.3)
Natural gas processing
Price-related decreases in NGL margins .................................. -- (27.4) -- (27.4) (17.8)
Lower NGL production volumes ............................................ -- (2.9) -- (2.9) (1.9)
Lower NGL marketing earnings (primarily due to declining
prices early in fiscal 1998 versus rising prices late in fiscal 1997).. -- (6.0) -- (6.0) (3.9)
Increased operating expenses (principally
repairs and maintenance at the Bridgeport plant) ...................... -- (6.0) -- (6.0) (3.9)
Gas gathering and marketing ................................................. -- (5.6) -- (5.6) (3.6)
Equity in earnings of MTBE plant partnership ................................ -- 1.5 -- 1.5 1.0
Increased interest expense attributable to continuing operations ............ -- -- (4.6) (4.6) (3.0)
Interest income on excess cash balances ..................................... -- -- 8.2 8.2 5.3
Gains on venture capital investments ........................................ -- -- 5.4 5.4 3.5
Lower effective income tax rate ............................................. -- -- -- -- 5.3
Other, net .................................................................. .2 1.8 1.4 3.4 2.2
------ ------ ------ ------ ------
(18.9) (44.6) 10.4 (53.1) (29.2)
------ ------ ------ ------ ------
FISCAL 1998 AMOUNTS BEFORE UNUSUAL ITEMS .................................... 62.5 63.5 (44.7) 81.3 57.5
------ ------ ------ ------ ------
See
Page
FISCAL 1998 UNUSUAL ITEMS ----
Royalty litigation settlement provision ....................... 42 -- (26.0) -- (26.0) (16.9)
Water well litigation provision ............................... 35 (7.0) -- -- (7.0) (4.3)
Gain from sale of contract drilling assets .................... 42 2.4 -- -- 2.4 1.5
------ ------ ------ ------ ------
(4.6) (26.0) -- (30.6) (19.7)
------ ------ ------ ------ ------
FISCAL 1998 AMOUNTS AFTER UNUSUAL ITEMS ................................. $ 57.9 $ 37.5 $(44.7) $ 50.7 $ 37.8
====== ====== ====== ====== ======
</TABLE>
- ----------------
* Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW. Exclusive of unusual items, exploration and
production fiscal 1998 segment operating earnings of $62.5 million were $18.9
million below the $81.4 million of the prior year largely as a result of lower
24
<PAGE> 26
sales prices for natural gas and crude oil and condensate. Also contributing to
the earnings decline were increased expenditures for 3-D seismic surveys. The
Company increased its natural gas production by 4% in fiscal 1998.
Lower natural gas sales price ($13.3 million decrease). The Company's natural
gas sales price during fiscal 1998 averaged $2.47 per Mcf, $.17 below the $2.64
of the prior year, reducing operating earnings by $13.3 million. Lower crude oil
and condensate sales price ($6.5 million decrease). The Company's sales price
for crude oil and condensate averaged $18.50 per barrel in fiscal 1998, down
from the prior year's $21.50, reducing operating earnings by $6.5 million.
Higher natural gas sales volumes ($3.7 million increase). Natural gas sales
volumes averaged 238.2 MMcf per day during fiscal 1998, up from 228.5 MMcf
during fiscal 1997, increasing operating earnings by $3.7 million. The increase
was principally related to activities in the Lake Creek and North Personville
fields.
Higher crude and condensate sales volumes ($3.6 million increase). The Company's
production of crude oil and condensate increased 700 barrels per day (13%) in
fiscal 1998, increasing operating earnings by $3.6 million. This occurred
largely because of drilling in Throckmorton County (North Texas) and Lake Creek
and enhanced recovery projects in West Texas.
Increased geological and geophysical expenses ($6.6 million decrease). During
fiscal 1998, the Company stepped up its exploration program, particularly
increasing expenditures for 3-D seismic surveys to identify potential new well
locations in unexplored areas and in areas already well-worked by the Company
and others. As a result, geological and geophysical expenses rose $6.6 million
(64%) in fiscal 1998.
GAS SERVICES OVERVIEW. Gas services operating earnings before unusual items
declined $44.6 million to $63.5 million during fiscal 1998 principally because
of price-related reductions in earnings from gas processing and gas gathering
and marketing operations. Also contributing to the decline were volume
reductions resulting from normal field decline of the wells connected to the
45%-owned Texas Austin Chalk rich-gas system. Besides reducing the system's
throughput, this also lowered the NGL volumes extracted at gas processing plants
located on the system.
Natural gas processing - Price-related decreases in NGL margins ($27.4 million
decrease). The average price for NGLs produced during fiscal 1998 of $13.38 per
barrel was 17% below the prior year's $16.13, decreasing NGL revenues by $44.2
million. Partially offsetting the impact of this on NGL margins was a $16.8
million decline in feedstock costs, which occurred because of NGL-price-related
reductions in producer payments and fuel and shrinkage cost reductions
associated with fiscal 1998's lower natural gas prices.
Natural gas processing - Lower NGL production volumes ($2.9 million decrease).
NGL production volumes averaged 45,300 barrels per day, down from fiscal 1997's
46,100, reducing operating earnings by $2.9 million. This decline was
principally due to reduced inlet volumes at plants which process gas gathered by
the Austin Chalk rich-gas system.
Gas gathering and marketing ($5.6 million decrease). This variance was primarily
due to lower gas gathering and marketing margins in fiscal 1998. This occurred
largely because those margins did not benefit from unusual upward movements in
natural gas prices as fiscal 1997's had (particularly in the fourth quarter when
prices rose to near-record levels because of unusually cold weather throughout
much of the United States at a time when natural gas storage levels were
relatively low).
Equity in earnings of MTBE plant partnership ($1.5 million increase). This
variance resulted primarily from a $.7 million increase in operating income
because of less downtime for maintenance in fiscal 1998 (13 days versus 70) and
a $.9 million decline in interest expense occurring largely because of ongoing
quarterly repayments of the partnership's debt.
25
<PAGE> 27
OTHER
Increased interest expense attributable to continuing operations ($4.6 million
decrease). Interest was charged to discontinued real estate operations for only
six months in fiscal 1998 versus a full year in fiscal 1997. Primarily because
of this, the amount attributable to discontinued operations declined from $34
million to $15.1 million, thus shifting $18.9 million to the amount attributable
to continuing operations. Largely offsetting this increase, however, was a $14.3
million decline in fiscal 1998's total interest expense that resulted from a
$201.4 million lower average debt balance. The debt balance decline occurred
primarily because of senior note repayments ($100 million in February and $185.7
million in the third quarter using some of the TWC sales proceeds) and the
retirement of a $30 million term loan on January 28, 1997.
Interest income on excess cash balances ($8.2 million increase). During the last
half of fiscal 1998, the Company temporarily invested the substantial available
proceeds from the TWC sale in short-term investments. Primarily because of the
income from these investments, the Company earned interest income of $8.9
million in fiscal 1998, or $8.2 million more than in the previous year.
Lower effective income tax rate ($5.3 million net earnings increase). Largely
because of a deferred state income tax credit related to a reorganization late
in fiscal 1998 of the legal structure under which gas services operations are
conducted, the Company's effective income tax rate on earnings from continuing
operations was 25.4% in fiscal 1998, down from fiscal 1997's 35.5%.
UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands except per-share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL 1999
Revenues ..................................... $ 172,392 $ 180,715 $ 175,334 $ 172,949
Segment operating earnings (loss) ............ 17,443(a) 7,888 (a) 9,595 (51,805)(b)
Earnings (loss) from continuing operations ... 2,295 (4,248) (3,716) (47,293)
Discontinued real estate operations .......... 3,250 -- -- --
Net earnings (loss) .......................... 5,545 (4,248) (3,716) (47,293)
Basic and diluted earnings (loss) per share
Class A - From continuing operations ..... $ .05 $ (.09) $ (.08) $ (.97)
Net earnings ................... .11 (.09) (.08) (.97)
Class B - From continuing operations ..... .05 (.08) (.07) (.96)
Net earnings ................... .12 (.08) (.07) (.96)
FISCAL 1998
Revenues ..................................... $ 169,731 $ 175,602 $ 224,125 $ 221,044
Segment operating earnings (loss) ............ 26,259(c) (971)(d) 38,685 31,441
Earnings (loss) from continuing operations ... 10,721 (7,461) 17,735 16,831
Discontinued real estate operations .......... 5,756 (65,439) -- --
Extraordinary item (after tax) ............... -- -- (13,250) --
Net earnings (loss) .......................... 16,477 (72,900) 4,485 16,831
Basic and diluted earnings (loss) per share
Class A - From continuing operations ..... $ .20 $ (.15) $ .35 $ .32
Net earnings ................... .31 (1.41) .08 .32
Class B - From continuing operations ..... .21 (.14) .36 .35
Net earnings ................... .32 (1.40) .10 .35
</TABLE>
- -------------
(a) Includes water well litigation provision reversals of $3,000 in the first
quarter and $1,000 in the second.
(b) Reduced by exploration and production proved property impairments of
$42,250, gas services asset write-downs of $7,560 and personnel reduction
program charges of $15,652.
(c) Includes gain of $2,382 from the sale of contract drilling assets and is
reduced by a $7,000 water well litigation provision.
(d) Reduced by royalty litigation provision of $26,000.
26
<PAGE> 28
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1999 and 1998 (dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................................... $ 20,300 $ 105,309
Trade receivables (net of allowance for doubtful accounts of $318 and $326) .... 34,078 113,285
Inventories .................................................................... 10,734 14,479
Income taxes receivable ........................................................ 5,944 --
Net assets of discontinued real estate operations (Note 3) ..................... -- 26,056
Other .......................................................................... 8,576 8,591
----------- -----------
Total current assets ........................................................ 79,632 267,720
PROPERTY, PLANT AND EQUIPMENT (at cost less accumulated depreciation,
depletion and amortization of $1,450,685 and $1,331,139 - Note 2) .......... 1,033,738 954,667
LONG-TERM INVESTMENTS AND OTHER ASSETS ......................................... 33,106 29,586
----------- -----------
$ 1,146,476 $ 1,251,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........................................... $ 100,000 $ --
Oil and gas proceeds payable ................................................... 68,658 94,661
Accounts payable ............................................................... 32,868 55,119
Accrued liabilities ............................................................ 40,269 48,969
----------- -----------
Total current liabilities .................................................... 241,795 198,749
----------- -----------
LONG-TERM DEBT (Note 5) ........................................................ 362,467 414,267
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes (Note 6) ................................................. 130,069 167,903
Retirement obligations and other ............................................... 87,371 58,128
----------- -----------
217,440 226,031
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY (Note 12)
Preferred stock, $.10 par value (authorized 10,000,000 shares; none issued)
Common stock, $.10 par value
(authorized 100,000,000 Class A and 100,000,000 Class B shares) ............ 5,386 5,386
Additional paid-in capital ..................................................... 143,636 143,525
Retained earnings .............................................................. 287,283 361,905
Other comprehensive loss ....................................................... (7,381) --
Treasury stock, at cost ........................................................ (104,150) (97,890)
----------- -----------
324,774 412,926
----------- -----------
$ 1,146,476 $ 1,251,973
=========== ===========
</TABLE>
- --------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 29
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1999, 1998 and 1997 (in thousands except
per-share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Exploration and production ...................................... $ 221,634 $ 262,432 $ 269,862
Gas services .................................................... 479,756 528,070 636,815
--------- --------- ---------
701,390 790,502 906,677
--------- --------- ---------
OPERATING COSTS AND EXPENSES (including personnel
reduction program costs of $15,652 in 1999 - Note 10)
Exploration and production (including proved property
impairments of $42,250 in 1999 and litigation provisions
(reversals) of $(4,000); $7,000 and $10,000 - Note 7) ....... 259,174 204,522 189,051
Gas services (including asset write-downs of $7,560
in 1999 and litigation provision of $26,000 in 1998) ........ 459,095 490,566 528,719
--------- --------- ---------
718,269 695,088 717,770
--------- --------- ---------
SEGMENT OPERATING EARNINGS (LOSS) (Note 10) ..................... (16,879) 95,414 188,907
General and administrative expense (including
personnel reduction program costs of $8,848 in 1999) ........ 39,166 31,978 30,823
--------- --------- ---------
TOTAL OPERATING EARNINGS (LOSS) ................................. (56,045) 63,436 158,084
--------- --------- ---------
OTHER EXPENSE
Interest expense (excluding amounts attributable to
discontinued operations of none; $15,112 and $34,007) ....... 35,070 27,419 22,775
Interest income ................................................. (885) (8,899) (650)
Other, net ...................................................... (5,637) (5,819) 2,202
--------- --------- ---------
28,548 12,701 24,327
--------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES .............................. (84,593) 50,735 133,757
INCOME TAXES (Note 6) ........................................... (31,631) 12,909 47,456
--------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ...................... (52,962) 37,826 86,301
--------- --------- ---------
DISCONTINUED REAL ESTATE OPERATIONS (Note 3)
Earnings from operations, net of
income taxes of $4,071 and $8,914 ........................... -- 7,440 16,925
Loss on sale, net of income taxes of $1,750 in 1999 and
income tax benefit of $25,878 in 1998 ....................... 3,250 (67,123) --
--------- --------- ---------
3,250 (59,683) 16,925
--------- --------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM ....................... (49,712) (21,857) 103,226
EXTRAORDINARY ITEM - Extinguishment of debt,
net of income tax benefit of $7,135 (Note 14) ............... -- (13,250) --
--------- --------- ---------
NET EARNINGS (LOSS) ............................................. $ (49,712) $ (35,107) $ 103,226
========= ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Note 13)
Class A - From continuing operations ............................ $ (1.11) $ .71 $ 1.64
Net earnings .......................................... (1.04) (.66) 1.96
Class B - From continuing operations ............................ (1.05) .77 1.68
Net earnings .......................................... (.99) (.72) 2.01
AVERAGE COMMON SHARES OUTSTANDING (Basic) - Class A ............. 22,321 22,714 23,092
Class B ............. 26,785 27,989 28,786
</TABLE>
- ------------------
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended January 31, 1999, 1998 and 1997 (dollar amounts in
thousands)
<TABLE>
<CAPTION>
Other
Additional Compre-
Common Paid-in Retained hensive Treasury
DOLLAR AMOUNTS Total Stock Capital Earnings Loss Stock
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996 ......................... $ 481,903 $ 5,386 $ 143,270 $ 358,281 $ -- $ (25,034)
Net earnings ...................................... 103,226 -- -- 103,226 -- --
Cash dividends (48 cents per share on
Class A and 53 cents per share on Class B) .... (26,342) -- -- (26,342) -- --
Treasury stock purchases .......................... (3,917) -- -- -- -- (3,917)
Exercises of stock options ........................ 417 -- 73 -- -- 344
--------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1997 ......................... 555,287 5,386 143,343 435,165 -- (28,607)
Net loss .......................................... (35,107) -- -- (35,107) -- --
Regular cash dividends (48 cents
per share on Class A and 53 cents
per share on Class B) ......................... (25,691) -- -- (25,691) -- --
Special cash dividends (24 cents per share on
Class A and 26.5 cents per share on Class B) .. (12,462) -- -- (12,462) -- --
Treasury stock purchases .......................... (72,465) -- -- -- -- (72,465)
Exercises of stock options ........................ 3,364 -- 182 -- -- 3,182
--------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1998 ......................... 412,926 5,386 143,525 361,905 -- (97,890)
Net loss .......................................... (49,712) -- -- (49,712) -- --
Minimum pension liability adjustment
(net of income taxes of $3,975) ............... (7,381) -- -- -- (7,381) --
---------
Comprehensive loss ................................ (57,093)
Cash dividends (48 cents per share on
Class A and 53 cents per share on Class B) .... (24,910) -- -- (24,910) -- --
Treasury stock purchases (including
$7,458 adjustment payment on fiscal 1998
accelerated stock purchase transaction)........ (9,217) -- -- -- -- (9,217)
Exercises of stock options ........................ 3,068 -- 111 -- -- 2,957
--------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1999 ......................... $ 324,774 $ 5,386 $ 143,636 $ 287,283 $ (7,381) $(104,150)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Outstanding Shares
-------------------------- -------------------------- --------------------------
SHARE AMOUNTS Class A Class B Class A Class B Class A Class B
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996 ...... 23,978,095 29,878,095 750,279 1,046,057 23,227,816 28,832,038
Treasury stock purchases ....... -- -- 179,000 64,400 (179,000) (64,400)
Exercises of stock options ..... -- -- (6,850) (17,499) 6,850 17,499
Other .......................... (7) (7) -- -- (7) (7)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1997 ...... 23,978,088 29,878,088 922,429 1,092,958 23,055,659 28,785,130
Treasury stock purchases ....... -- -- 745,000 2,219,200 (745,000) (2,219,200)
Exercises of stock options ..... -- -- (10,492) (158,341) 10,492 158,341
Other .......................... (7) (7) -- -- (7) (7)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1998 ...... 23,978,081 29,878,081 1,656,937 3,153,817 22,321,144 26,724,264
Treasury stock purchases ....... -- -- -- 65,000 -- (65,000)
Exercises of stock options ..... -- -- (500) (136,367) 500 136,367
Other .......................... (4) (4) -- -- (4) (4)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1999 ...... 23,978,077 29,878,077 1,656,437 3,082,450 22,321,640 26,795,627
=========== =========== =========== =========== =========== ===========
</TABLE>
- ----------------
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 31
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1999, 1998 and 1997 (in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Earnings (loss) from continuing operations ................................ $ (52,962) $ 37,826 $ 86,301
Adjustments to reconcile earnings (loss) from continuing
operations to cash provided by operating activities
Depreciation, depletion and amortization (including producing property
impairments of $42,250 and gas services asset write-downs
of $7,560 in 1999) .................................................. 168,431 105,613 99,067
Exploration expenses (including exploratory well impairments) ........... 25,807 22,376 18,051
Deferred income taxes ................................................... (25,408) 15,329 42,781
Distributions in excess of (less than) earnings of equity investees ..... 9,609 (554) (3,528)
Accrued personnel reduction program costs ............................... 17,620 -- --
Litigation provisions (reversals) ....................................... (4,000) 33,000 10,000
Gain from sale of property, plant and equipment ......................... -- (2,382) --
Other, net .............................................................. (5,323) (4,853) 5,657
---------- ---------- ----------
133,774 206,355 258,329
Changes in operating assets and liabilities
Receivables ......................................................... 50,944 127,586 33,470
Inventories ......................................................... 3,745 (4,407) 884
Payables ............................................................ (19,271) (44,753) 21,023
Accrued liabilities and other ....................................... 4,526 (46,464) 850
---------- ---------- ----------
Cash provided by operating activities ..................................... 173,718 238,317 314,556
---------- ---------- ----------
INVESTING ACTIVITIES
Capital and exploratory expenditures
Total on accrual basis (including asset
acquisitions of $89,266; $26,280 and $2,343) ....................... (289,402) (258,292) (175,826)
Adjustment to cash basis .............................................. (11,635) 6,762 5,688
---------- ---------- ----------
(301,037) (251,530) (170,138)
Net proceeds from sale of The Woodlands Corporation ....................... -- 480,994 --
Repayments of off-balance-sheet partnership debt .......................... -- (43,827) --
Property, plant and equipment sales proceeds .............................. 8,581 6,903 8,842
Acquisition of leased equipment ........................................... -- -- (6,995)
Other, net ................................................................ 4,462 6,930 (7,851)
---------- ---------- ----------
Cash provided by (used for) investing activities ...................... (287,994) 199,470 (176,142)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of debt ............................................ 108,200 -- --
Debt repayments ........................................................... (60,000) (285,733) (95,000)
Cash dividends (including special dividends of $12,462 in 1998) ........... (24,910) (38,153) (26,342)
Treasury stock purchases .................................................. (9,217) (72,465) (3,917)
Other (including debt reacquisition costs of $19,294 in 1998) ............. 2,267 (17,487) (1,142)
---------- ---------- ----------
Cash provided by (used for) financing activities ...................... 16,340 (413,838) (126,401)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS ................................ (97,936) 23,949 12,013
CASH PROVIDED BY DISCONTINUED OPERATIONS .................................. 12,927 5,535 45,945
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............................. 105,309 75,825 17,867
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR .................................... $ 20,300 $ 105,309 $ 75,825
========== ========== ==========
</TABLE>
- -------------------
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 32
MITCHELL ENERGY & DEVELOPMENT CORP., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1999, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations and principles of consolidation. Mitchell Energy &
Development Corp. together with its majority-owned subsidiaries (the "Company")
is a large independent energy company engaged in the exploration for and
development and production of natural gas, natural gas liquids, and crude oil
and condensate. The Company also operates natural gas gathering systems in Texas
and markets natural gas through purchase and resale activities.
The consolidated financial statements include the accounts of the Company
after elimination of all significant intercompany accounts and transactions. The
equity method of accounting is used for investments in 20%-to-50%-owned
entities.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property, plant and equipment. The Company's exploration and production
activities are accounted for using the "successful efforts" method. Lease
acquisition costs are capitalized as are costs to drill and equip development
wells, including unsuccessful ones. Exploratory drilling costs are initially
capitalized; if proved reserves are not found, such costs are subsequently
impaired. Geological and geophysical costs and other exploration costs are
charged to expense as incurred. Depreciation, depletion and amortization (DD&A)
of proved oil and gas properties is determined on a field-by-field basis using
physical units of production. Estimated future costs of dismantlement,
restoration and abandonment are considered in determining DD&A expense.
The Company holds no unproved leases whose costs are individually
significant. Costs of unproved leaseholds are charged to expense over estimated
holding periods based on historical experience. Leasehold costs for properties
determined to be productive are transferred to proved oil and gas properties.
Other property, plant and equipment additions are recorded at cost and
depreciated on the straight-line method over the estimated service lives of the
various assets, which range from 3 to 25 years. Maintenance and repair costs are
charged to expense; costs of renewals and betterments are capitalized.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. When it is determined that an asset's estimated
future net cash flows will not be sufficient to recover its carrying amount, an
impairment charge is recorded to reduce the carrying amount for that asset to
its estimated fair value. Impairment assessments for proved oil and gas
properties are made on a field-by-field bas is. Charges for such impairments,
which are included in DD&A expense, totaled $42,250,000 (see Note 10);
$1,640,000 and $3,068,000 in fiscal 1999, 1998 and 1997.
Environmental expenditures. Liabilities for environmental expenditures are
recognized when it is probable that obligations have been incurred in amounts
that are material and reasonably estimable.
Statements of Cash Flows. Short-term investments with maturities of three months
or less are considered to be cash equivalents. The reported amounts for proceeds
from issuance of debt and debt repayments exclude the impact of borrowings with
initial terms of three months or less. Interest paid, including amounts
attributable to discontinued operations, totaled $32,878,000; $45,030,000 and
$57,797,000 during fiscal 1999, 1998 and 1997. Income taxes paid during these
periods, including amounts applicable to discontinued operations, totaled
$2,110,000; $64,500,000
31
<PAGE> 33
(a substantial portion of which was related to the taxable gain on the sale of
The Woodlands Corporation) and $10,600,000. There were no significant non-cash
investing or financing activities during the three-year period ended January 31,
1999.
Accounting for derivatives. In June 1998, the Financial Accounting Standards
Board adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which the
Company must adopt by fiscal 2001. The statement requires that all derivatives
be recognized at fair value as assets or liabilities and that changes in fair
value be recorded in earnings or other comprehensive income. While the Company's
analysis of the potential impact of this statement has not been completed, its
infrequent use of derivatives - particularly those which are not hedges - makes
it unlikely that the adoption of this statement will have a significant impact
on the Company's financial statements.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
The cost and net book value of property, plant and equipment consisted of the
following at January 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Cost Net Book Value
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EXPLORATION AND PRODUCTION
Oil and gas properties ...................... $1,863,422 $1,690,693 $ 683,946 $ 613,565
Support equipment and facilities ............ 50,612 48,467 16,253 18,407
---------- ---------- ---------- ----------
1,914,034 1,739,160 700,199 631,972
---------- ---------- ---------- ----------
GAS SERVICES (including investments in equity
partnerships - Note 4)
Natural gas processing ...................... 187,300 195,395 102,761 106,464
Natural gas gathering ....................... 286,694 260,632 145,488 134,779
Other ....................................... 80,853 74,757 79,678 73,689
---------- ---------- ---------- ----------
554,847 530,784 327,927 314,932
---------- ---------- ---------- ----------
CORPORATE ................................... 15,542 15,862 5,612 7,763
---------- ---------- ---------- ----------
$2,484,423 $2,285,806 $1,033,738 $ 954,667
========== ========== ========== ==========
</TABLE>
NOTE 3 - DISCONTINUED REAL ESTATE OPERATIONS
On June 12, 1997, the Company entered into an agreement to sell its real estate
subsidiary, The Woodlands Corporation (TWC), to a partnership of Crescent Real
Estate Equities Company and Morgan Stanley Real Estate Fund II, L.P. for
$543,000,000 in cash. The transaction was subsequently closed on July 31, 1997.
In connection with the sale, the parent company forgave intercompany debt
payable to it by TWC. After adjustment for certain net additional amounts
received pursuant to the contract and deductions for income taxes and
transaction costs incurred by the Company in connection with the sale, net cash
sales proceeds totaled $480,994,000.
The Company decided to withdraw from the real estate business upon entering
into the definitive agreement to sell TWC on June 12, 1997 and commenced
reporting real estate activities as discontinued operations effective that date.
The Company's financial statements were revised to segregate the net assets
associated with the discontinued operations and to separately report their
results of operations. Prior-year financial statements were restated similarly.
Interest expense attributable to discontinued operations was determined in the
same manner that historically had been used to allocate such costs to the
Company's real estate operations. After an income tax benefit of $25,878,000, a
net loss of $67,123,000 was recorded in connection with the discontinuance of
the Company's real estate activities.
During the first quarter of fiscal 1999, adjustments were recorded reducing
the $67,123,000 loss on disposition previously recorded in connection with the
discontinuance of real estate operations by $3,250,000 ($5,000,000 pretax). This
occurred because actual realizations were higher than originally estimated and
certain contingent obligations
32
<PAGE> 34
were settled for less than the amounts accrued. The Company ceased segregating
discontinued operations during fiscal 1999 since the liquidation of the
remaining real estate properties had been substantially completed.
NOTE 4 - PARTNERSHIP INVESTMENTS
A summary of the Company's investments in partnerships at January 31, 1999 and
1998 and its equity in their pretax earnings for the years ended January 31,
1999, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
Net Investment Equity in Pretax Earnings
Percent ----------------------- -------------------------------------
Owned 1999 1998 1999 1998 1997
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS PROCESSING
C&L Processors Partnership ............. 50 $ 60,130 $ 51,945 $ (301) $ 2,908 $ 7,831
U.P. Bryan Plant ....................... 45 2,244 6,738 1,033 3,525 8,976
Others ................................. -- -- -- (18) 167
---------- ---------- ---------- ---------- ----------
62,374 58,683 732 6,415 16,974
---------- ---------- ---------- ---------- ----------
GAS GATHERING AND MARKETING
Austin Chalk Natural Gas
Marketing Services ................. 45 739 670 2,814 2,662 2,633
Ferguson-Burleson County
Gas Gathering System ............... 45 40,151 43,863 3,542 3,262 9,953
Louisiana Chalk Gathering System ....... 50 17,346 19,053 (726) (367) --
Others ................................. 353 138 3,613* 57 51
---------- ---------- ---------- ---------- ----------
58,589 63,724 9,243 5,614 12,637
---------- ---------- ---------- ---------- ----------
OTHER
Belvieu Environmental Fuels (BEF) ...... 33.33 47,660 41,300 9,068 10,126 8,472
Gulf Coast Fractionators ............... 38.75 30,364 30,629 4,613 4,900 4,063
---------- ---------- ---------- ---------- ----------
78,024 71,929 13,681 15,026 12,535
---------- ---------- ---------- ---------- ----------
$ 198,987 $ 194,336 $ 23,656 $ 27,055 $ 42,146
========== ========== ========== ========== ==========
</TABLE>
- ----------
*Includes $3,492 gain on a partnership's sale of the Brooks-Hidalgo gathering
system.
The Company's net investment in each of these entities is reported as property,
plant and equipment in the consolidated balance sheets and its equity in their
pretax earnings is reported as revenues in the consolidated statements of
earnings, each under the gas services caption.
Of the partnerships, only BEF has outstanding debt that is recourse to the
Company. At January 31, 1999, BEF's bank loan had an outstanding balance of
$58,667,000, the Company's share of which totaled $19,556,000 ($6,667,000 of
which is recourse to the Company). The loan bears interest at floating rates
based on spreads over LIBOR and is due in quarterly installments of $9,778,000
plus interest through May 2000. BEF owns a plant located at Mont Belvieu, Texas
with the capacity to produce up to 17,000 barrels per day of MTBE, a gasoline
additive that reduces carbon monoxide emissions. BEF has entered into agreements
which require each of the three partners to provide one-third of the plant's
isobutane feedstock and one of the partners, Sun Company, Inc., to purchase all
of its production for a period extending through September 2004.
Summarized balance sheet information (on a 100% basis) for these entities
at January 31, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets ............................................................... $ 94,369 $ 114,301
Net noncurrent assets ........................................................ 499,856 523,697
Current liabilities .......................................................... 60,734 72,436
Debt payable to third parties (including current maturities of $60,350 and
$59,064) ..................................................................... 92,542 151,606
Notes payable to owners (including $5,000 and $3,045 payable to the
Company) ................................................................ 10,000 6,090
Owners' equity ............................................................... 430,949 407,866
</TABLE>
33
<PAGE> 35
Summarized earnings information (on a 100% basis) for these entities for
the years ended January 31, 1999, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues ................................................................... $553,542 $764,272 $814,394
Operating earnings ......................................................... 58,474 87,845 117,290
Pretax earnings (before interest expense for those entities
whose activities are funded by capital contributions of the owners) .... 43,365 69,918 94,997
</TABLE>
NOTE 5 - LONG-TERM DEBT
The Company's outstanding debt consists of parent company senior notes, the
proceeds of which have been advanced to the operating subsidiaries, and
borrowings under bank revolving credit and money market facilities. A summary of
outstanding debt at January 31, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Unsecured senior notes
8%, due July 15, 1999 ........................................ $ 100,000 $ 100,000
9 1\4%, due January 15, 2002 ................................. 64,267 64,267
6 3\4%, due February 15, 2004 ................................ 250,000 250,000
Committed bank revolving credit agreement, unsecured ............. 35,000 --
Uncommitted money market facility, at floating interest rates .... 13,200 --
---------- ----------
462,467 414,267
Less - Current maturities ........................................ 100,000 --
---------- ----------
$ 362,467 $ 414,267
========== ==========
</TABLE>
During July 1998, the parent company entered into a five-year $250,000,000
bank revolving credit agreement, replacing a $150,000,000 facility of its
primary energy subsidiary. Any amounts then outstanding under the new agreement
are payable in July 2003. Interest rates, which generally are based on spreads
over LIBOR, vary based on the highest of the ratings given the Company's senior
notes by two specified rating agencies. The Company pays commitment fees on the
unused portion of this facility.
The Company's senior notes have no sinking fund requirements and are not
redeemable prior to their respective maturity dates. The bank revolving credit
agreement (as amended in March 1999) contains certain restrictions which, among
other things, limit the payment of dividends by requiring consolidated tangible
net worth, as defined, to equal at least $275,000,000 and require the
maintenance of a specified consolidated leverage ratio based on earnings before
interest, taxes and DD&A and excluding extraordinary, unusual, non-recurring and
non-cash charges and credits. After considering the March 1999 amendment,
retained earnings available for the payment of cash dividends totaled
$47,815,000 at January 31, 1999. The bank credit agreement and/or the senior
notes indentures also limit the amounts of additional borrowings and letters of
credit, restrict the sale or lease of certain assets and limit the right of the
parent company and certain subsidiaries to merge with other companies.
NOTE 6 - INCOME TAXES
Income taxes applicable to earnings from continuing operations for the years
ended January 31, 1999, 1998 and 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current - Federal ................. $ (6,361) $ (2,425) $ 1,689
State ................... 138 5 2,986
---------- ---------- ----------
(6,223) (2,420) 4,675
---------- ---------- ----------
Deferred - Federal ................ (21,942) 19,033 40,883
State .................. (3,466) (3,704) 1,898
---------- ---------- ----------
(25,408) 15,329 42,781
---------- ---------- ----------
$ (31,631) $ 12,909 $ 47,456
========== ========== ==========
</TABLE>
34
<PAGE> 36
As shown in the table on the preceding page, the Company recorded a state income
tax benefit of $3,699,000 in fiscal 1998. This occurred principally because of a
legal reorganization of the Company's gas services operations, which allowed the
Company to reduce its previously recorded deferred tax liability.
Reconciliations from the 35% statutory Federal income tax rate to the
Company's effective income tax rate for the fiscal years 1999, 1998 and 1997
follow:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income tax rate ............................... 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax effect ............ 2.6 (4.7) 2.4
Federal tax credits under Section 29 of the Internal Revenue
Code for natural gas produced from certain wells ............ -- (4.0) (2.1)
Other, net ...................................................... (.2) (.9) .2
-------- -------- --------
37.4% 25.4% 35.5%
======== ======== ========
</TABLE>
The principal components of the Company's deferred income tax liability
consisted of the following at January 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Oil and gas acquisition, exploration and development costs
deducted for tax purposes in excess of financial statement DD&A ....... $ 120,769 $ 136,462
Depreciation of other property, plant and equipment ....................... 46,378 44,704
Unused alternative minimum tax credits .................................... (12,274) --
Accrued employee benefits expense not yet deductible for tax purposes ..... (32,562) (20,607)
Other, net ................................................................ 7,758 7,344
--------- ---------
$ 130,069 $ 167,903
========= =========
</TABLE>
At January 31, 1999, the Company had $12,274,000 of unused alternative
minimum tax credits that can be carried forward indefinitely. These credits have
been recognized in the calculation of the Company's financial statement income
tax provision. Accordingly, their future utilization would only reduce the
amount of taxes currently payable, not the financial statement income tax
provision.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
North Texas water well litigation. On March 1, 1996, in a trial known as the
Bartlett case, a judgment was entered against a wholly owned subsidiary of the
Company by a Wise County, Texas court. The judgment awarded $4,051,760 in actual
damages (consisting of $339,266 for economic damages and $3,712,494 for pain,
mental anguish, inconvenience, etc.) and $200,000,000 in exemplary damages to
eight plaintiff groups, who claimed that the natural gas operations of the
subsidiary had affected their water wells. The Company appealed this judgment to
the Second Court of Appeals in Fort Worth, Texas, and in November 1997 the
court's three-judge panel unanimously reversed the previous decision, finding
that the plaintiffs failed to prove that the Company's actions were the cause of
their alleged damages and that the claims of most plaintiffs were time-barred by
statutes of limitations. The appeals court subsequently denied the plaintiffs'
request for a reconsideration of its decision. The plaintiffs' request that the
Texas Supreme Court review and overturn this decision was also subsequently
denied.
In May 1997, in the Bailey case - which involved allegations similar to
those in the Bartlett case - another jury in the Wise County court found
unanimously on all counts that the Company was not responsible for damages
claimed by 17 other plaintiff groups (and that most of their claims were
time-barred by statutes of limitations, in any event). The court entered the
judgment on July 15, 1997. After their motion for a new trial was denied, the
plaintiffs appealed this decision to the Second Court of Appeals, which affirmed
the trial court's judgment on February 25, 1999. On March 12, 1999, the
plaintiffs filed a motion for a rehearing with the Court of Appeals, which is
expected to deny it. It is not known whether the plaintiffs will request the
Texas Supreme Court to review this decision. If they do, that court is expected
to deny the request.
35
<PAGE> 37
In three other cases involving allegations similar to those in the Bartlett
case, judges in the Wise County court issued summary judgments in favor of the
Company during January, April and July 1998. The plaintiffs appealed two of
these judgments to the Second Court of Appeals, which affirmed the trial court's
judgments in separate decisions on November 19, 1998 and January 7, 1999. The
plaintiffs subsequently requested that the Texas Supreme Court review and
overturn these decisions, which it is not expected to do.
With the settlement in September 1998 of the last remaining 25 untried
lawsuits involving similar allegations, this litigation has run its course
except for the plaintiffs' outstanding appeals in the cases discussed above and
a potential appeal of the Bailey decision to the Texas Supreme Court.
The Company believes that a number of its insurance carriers have
responsibilities for participating in the defense costs incurred by the Company
in connection with this litigation. By January 31, 1999, reimbursement
agreements had been entered into with three carriers and the Company had
received $9,400,000 in reimbursements. Reimbursement agreements were executed
with two additional carriers late in March 1999, and negotiations continue with
other carriers which hopefully will be concluded successfully during fiscal
2000.
The Company reviews the adequacy of its accrued liability for this
litigation at least quarterly. Expense provisions totaling $32,000,000 have been
made over the years (including $7,000,000 in fiscal 1998 and $10,000,000 in
fiscal 1997). Costs incurred - which consisted principally of attorneys' fees
and other defense costs for the Bartlett and Bailey trials and costs of bonds,
etc., related to the appeal of the Bartlett judgment - were charged against the
reserve. Insurance reimbursements are included in the determination of the
adequacy of the accrued liability only after reimbursement agreements have been
executed. After entering into the two reimbursement agreements in April 1998 and
after agreeing in August to settle the last 25 untried cases, the Company
recorded reversals of the previous provisions of $3,000,000 and $1,000,000,
respectively, in the first and second quarters of fiscal 1999.
Leases and contingent liabilities. The Company has various noncancellable
equipment and facility operating lease agreements which provide for aggregate
future payments of approximately $23,800,000. Minimum rentals for each of the
five years subsequent to fiscal 1999 total approximately $7,800,000; $7,100,000;
$5,700,000; $1,600,000 and $1,500,000. Rental expense for operating leases
totaled approximately $6,100,000; $6,500,000 and $6,500,000 in fiscal 1999, 1998
and 1997. In addition to obligations described elsewhere in these notes, the
Company had contingent liabilities totaling approximately $17,200,000 at January
31, 1999, consisting of guarantees of third-party debt.
Environmental regulations. The Company is considered by the United States
Environmental Protection Agency (the EPA) to be a potentially responsible party
with respect to two Superfund waste disposal sites. The only site involving more
than minimal potential exposure to the Company is the Operating Industries, Inc.
site located in Monterey Park, California, where small amounts of non-toxic
drilling fluids from Company-operated oil and gas wells were deposited. Although
the Company believes that it should be exempt from liability with respect to
this site, to date it has paid and expensed approximately $575,000 of costs.
While additional exposure exists for future cleanup and closure costs of this
site, the Company's share of such costs is not expected to be significant.
The Company continually monitors the many Federal, state and local laws and
regulations relating to the protection of the environment and public health and
believes it is in substantial compliance with such rules. Also, it expects to
continue to be able to conform with environmental regulations without materially
altering its operating strategies.
Other. The Company also is party to other claims and legal actions arising in
the ordinary course of its business and to recurring examinations performed by
the Internal Revenue Service and other regulatory agencies. While the outcome of
all such matters cannot be predicted with certainty, management expects that
losses, if any, resulting from the ultimate resolution of the matters discussed
in the preceding paragraphs of this footnote will not result in charges that are
material to the Company's financial position. It is possible, however, that
charges could be required that would be significant to the operating results of
a particular period.
36
<PAGE> 38
As indicated in Note 4, the Company holds a one-third interest in a
partnership which owns a plant that manufactures a gasoline additive known as
MTBE. The EPA has formed a national advisory panel to review public health and
environmental issues that have been raised by the use of MTBE in gasoline,
specifically the discovery of MTBE in water supplies. That panel is expected to
make recommendations to the EPA in mid-1999. Also, several states have commenced
reviews of the use of MTBE in gasoline, and in March 1999 the governor of
California ordered that the use of MTBE be phased out in that state over a
four-year period. While restrictions on the use of MTBE could have a significant
future impact on the MTBE plant partially owned by the Company, that facility
could be converted to alternative uses. It is not possible at this time to
determine the ultimate impact, if any, of this matter on the Company's financial
position or future results of operations.
NOTE 8 - FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company's financial
instruments at January 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------ --------------------------
Carrying Estimated Carrying Estimated
Amounts Fair Values Amounts Fair Values
-------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Long-term debt (including current maturities) ................ $462,467 $449,147 $414,267 $427,980
</TABLE>
Fair values of the Company's fixed-rate senior notes were based on quoted market
prices. For floating-rate debt, carrying amounts and fair values were assumed to
be equal because of the nature of these obligations. The carrying amounts of
other on-balance-sheet financial instruments approximate their fair values. The
aggregate cost to terminate off-balance-sheet financial instruments is not
significant.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Such use generally
consists of using commodities futures contracts to hedge well-defined energy
price risks. At January 31, 1999 and 1998, open transactions under such
arrangements were not significant.
In November 1998, Mitchell Receivables, Inc. (MRC), a wholly owned
subsidiary, entered into a securitization agreement which provides for ongoing
sales of up to $75,000,000 of energy accounts receivable. Proceeds from
outstanding sales under this program, which totaled $50,000,000 at January 31,
1999, were used to pay down revolving credit agreement borrowings in fiscal
1999. MRC is a special purpose subsidiary whose assets must first be used to
satisfy its creditors and are not available to satisfy creditors of the parent
company.
NOTE 9 - RETIREMENT BENEFITS
Substantially all full-time employees of the Company who meet specified age and
service requirements are covered by a defined benefit retirement plan which is
maintained without cost to the employees. Pension benefits are based on years of
service and average earnings for the three highest consecutive years during the
ten years immediately preceding retirement. The Company's funding policy is to
make contributions to the plan of at least the minimum amounts required by
applicable Federal laws and regulations. No contributions were made to the plan
during the last three fiscal years.
Internal Revenue Service regulations limit the benefits that may be paid to
certain employees under the Company's qualified retirement plan. Nonqualified
plans are maintained to make the basis on which those individuals' retirement
benefits are determined the same as is used for other employees. During fiscal
1997, a Rabbi trust fund was established from which these benefits are to be
paid. That fund's assets - which under generally accepted accounting principles
must be reported as an asset of the Company rather than being offset against the
accrued benefit costs - totaled $15,050,000 and $12,583,000 at January 31, 1999
and 1998. These assets are included in Long-term Investments and Other Assets in
the accompanying balance sheets.
37
<PAGE> 39
Retirees who reach retirement age while working for the Company and meet
certain other eligibility requirements may elect coverage under the Company's
postretirement medical benefits plan. This plan incorporates a
scheduled-reimbursements methodology under which the Company and providers agree
to specified rates for individual services. The Company has the right to amend
or terminate medical benefits for active employees and retirees or to change the
required level of participant contributions. The cost of providing these
postretirement health care benefits is reduced by available Medicare coverage
and retiree contributions. The plan is unfunded, and benefits are paid as costs
are incurred.
The following table provides the indicated information for the years ended
January 31, 1999 and 1998 concerning the Company's retirement plans and its
postretirement medical benefits plan (dollar amounts in thousands):
<TABLE>
<CAPTION>
Qualified Nonqualified Retiree Medical
Retirement Plan Retirement Plans Benefits Plan
---------------------- ---------------------- ----------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year ..... $ 126,432 $ 126,807 $ 12,700 $ 12,043 $ 20,592 $ 26,784
Service cost .............................. 3,385 3,420 358 361 667 684
Interest cost ............................. 8,933 8,832 877 857 1,440 1,859
Benefits paid ............................. (7,701) (7,869) (1,202) (1,038) (1,679) (1,461)
Special termination benefits .............. 15,611 -- 827 -- 2,873 --
Actuarial (gains) losses .................. 24,168 2,478 6,907 603 2,488 (1,985)
Curtailments .............................. (2,973) (2,944) -- (89) 2,416 (1,115)
Settlements paid .......................... -- (4,292) -- (37) -- --
Plan amendments ........................... -- -- -- -- -- (4,430)
Participant contributions ................. -- -- -- -- 217 256
--------- --------- -------- --------- --------- ---------
Benefit obligation, end of year ........... $ 167,855 $ 126,432 $ 20,467 $ 12,700 $ 29,014 $ 20,592
========= ========= ========= ========= ========= =========
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of year ..................... $ 150,088 $ 135,371
Actual return on plan assets .............. 35,417 26,879
Benefits paid ............................. (7,701) (7,869)
Settlements paid .......................... -- (4,293)
--------- ---------
Plan assets at fair value, end of year .... $ 177,804 $ 150,088
========= =========
FUNDED STATUS AT YEAR END
Plan assets over (under)
benefit obligation .................... $ 9,950 $ 23,656 $ (20,467) $ (12,700) $ (29,014) $ (20,592)
Unrecognized (gains) losses ............... (37,293) (41,616) 11,881 5,326 7,286 5,037
Unrecognized prior service cost ........... 179 322 802 944 (6,702) (8,816)
Unrecognized net transition obligation .... -- -- 166 250 -- --
Minimum pension liability adjustment ...... -- -- (12,324) -- -- --
--------- --------- --------- --------- --------- ---------
Accrued balance sheet liability ........... $ (27,164) $ (17,638) $ (19,942) $ (6,180) $ (28,430) $ (24,371)
========= ========= ========= ========= ========= =========
MINIMUM PENSION LIABILITY ADJUSTMENT
Additional minimum liability .............. $ 12,324 $ --
Offsetting intangible asset ............... 968 --
--------- ---------
$ 11,356 $ --
========= =========
</TABLE>
The actuarial assumptions used in computing the amounts disclosed herein
included discount rates of 6.75% in fiscal 1999 and 7.25% in fiscal 1998 and
1997, an expected annual rate of return on plan assets of 9% and age-graded
annual salary increases ranging from 3.5% to 5.5%.
38
<PAGE> 40
Components of financial statement expense for the Company's retirement
plans and its retiree medical benefits plan for the years ended January 31,
1999, 1998 and 1997 were (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
QUALIFIED RETIREMENT PLAN
Service cost ......................................... $ 3,385 $ 3,420 $ 3,455
Interest cost ........................................ 8,933 8,832 8,984
Return on plan assets (expected) ..................... (13,218) (12,000) (10,738)
Amortization of prior service cost ................... 95 103 111
Amortization of transition asset ..................... -- -- (895)
Amortization of unrecognized gains ................... (2,355) (1,674) (422)
---------- ---------- ----------
Net periodic benefit cost ............................ (3,160) (1,319) 495
Additional charges (credits) due to curtailments,
settlements and special termination benefits ..... 12,687(a) (4,031)(b) --
---------- ---------- ----------
Financial statement expense (credit) ................. $ 9,527 $ (5,350) $ 495
========== ========== ==========
NONQUALIFIED RETIREMENT PLANS
Service cost ......................................... $ 358 $ 361 $ 367
Interest cost ........................................ 877 857 607
Amortization of prior service cost ................... 142 155 167
Amortization of transition obligation ................ 83 91 98
Amortization of unrecognized losses .................. 359 414 114
---------- ---------- ----------
Net periodic benefit cost ............................ 1,819 1,878 1,353
Additional charges due to curtailments,
settlements and special termination benefits ..... 827(a) 247(b) --
---------- ---------- ----------
Financial statement expense .......................... $ 2,646 $ 2,125 $ 1,353
========== ========== ==========
RETIREE MEDICAL PLAN
Service cost ......................................... $ 667 $ 684 $ 1,028
Interest cost ........................................ 1,440 1,859 2,165
Amortization of prior service cost ................... (931) (500) (291)
Amortization of unrecognized gains ................... 238 305 508
---------- ---------- ----------
Net periodic benefit cost ............................ 1,414 2,348 3,410
Additional charges (credits) due to curtailments
and special termination benefits ................. 4,106(a) (1,930)(b) --
---------- ---------- ----------
Financial statement expense .......................... $ 5,520 $ 418 $ 3,410
========== ========== ==========
</TABLE>
- ---------------------------------
(a) These expenses - which totaled $17,620 - were related to a personnel
reduction program (see Note 10).
(b) These items - which totaled $(5,714) - related to the TWC sale and were
included in the calculation of the loss on that sale.
The Company's assumed health care cost trend rate equals 6% for fiscal 2000
and 2001, declines to 5.5% in 2002 and remains at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amount of
the retiree medical benefit obligation and the periodic financial statement
expense. An increase of 1% in the assumed trend rate would have increased the
retiree medical benefit obligation at January 31, 1999 by $4,153,000 and the
service and interest cost components of the fiscal 1999 financial statement
expense by a total of $423,000. A decrease of 1% in the trend rate would have
reduced these amounts by $3,409,000 and $343,000, respectively.
The Company maintains defined contribution plans in which eligible
employees may participate on a voluntary basis. The Company's contributions
which match each employee's contributions on a dollar-for-dollar basis up to 6%
of eligible compensation - totaled $3,117,000; $3,173,000 and $3,355,000 in
fiscal 1999, 1998 and 1997.
39
<PAGE> 41
NOTE 10 - SEGMENT INFORMATION
Industry segment data for the fiscal years ended January 31, 1999, 1998 and 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
Inter- Segment
Outside segment Operating
Revenues Revenues Earnings
---------- ---------- ----------
<S> <C> <C> <C>
FISCAL 1999
EXPLORATION AND PRODUCTION
Operations .................................. $ 221,634 $ -- $ 9,234
Proved property impairments ................. -- -- (42,250)
Personnel reduction program costs ........... -- -- (8,524)
Water well litigation provision
reversals (Note 7) ...................... -- -- 4,000
---------- ---------- ----------
221,634 -- (37,540)
---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... 253,295 72,043 (2,083)
Natural gas gathering and marketing ......... 211,387 232,377 23,483
Other ....................................... 15,074 -- 13,949
Personnel reduction program costs............ -- -- (7,128)(b)
Asset write-downs ........................... -- -- (7,560)(c)
---------- ---------- ----------
479,756 304,420 20,661
---------- ---------- ----------
CORPORATE ................................... -- -- --
---------- ---------- ----------
$ 701,390 $ 304,420 $ (16,879)
========== ========== ==========
FISCAL 1998
EXPLORATION AND PRODUCTION
Operations .................................. $ 260,050 $ -- $ 62,528
Water well litigation provision (Note 7) .... -- -- (7,000)
Gain from sale of
contract drilling assets ................ 2,382 -- 2,382
---------- ---------- ----------
262,432 -- 57,910
---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... 329,990 26,591 28,330
Natural gas gathering and marketing ......... 183,554 254,267 21,982
Other ....................................... 14,526 -- 13,192
Royalty litigation provision ................ -- -- (26,000)
---------- ---------- ----------
528,070 280,858 37,504
---------- ---------- ----------
CORPORATE ................................... -- -- --
---------- ---------- ----------
$ 790,502 $ 280,858 $ 95,414
========== ========== ==========
FISCAL 1997
EXPLORATION AND PRODUCTION
Operations .................................. $ 266,418 $ -- $ 81,432
Water well litigation provision (Note 7) .... -- -- (10,000)
Severance tax refunds ....................... -- -- 5,935
Columbia Gas contract
settlement proceeds ..................... 3,444 -- 3,444
---------- ---------- ----------
269,862 -- 80,811
---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... 376,980 30,127 69,110
Natural gas gathering and marketing ......... 247,214 208,043 27,589
Other ....................................... 12,621 -- 11,397
---------- ---------- ----------
636,815 238,170 108,096
---------- ---------- ----------
CORPORATE ................................... -- -- --
---------- ---------- ----------
$ 906,677 $ 238,170 $ 188,907
========== ========== ==========
<CAPTION>
Total Capital
Operating Expendi- Segment
Earnings DD&A tures(a) Assets
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL 1999
EXPLORATION AND PRODUCTION
Operations .................................. $ (2,859) $ 100,751 $ 240,708 $ 727,197
Proved property impairments ................. (42,250) 42,250 -- --
Personnel reduction program costs ........... (8,524) -- -- --
Water well litigation provision
reversals (Note 7).......... ............ 4,000 -- -- --
---------- ---------- ---------- ----------
(49,633) 143,001 240,708 727,197
---------- ---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... (5,357) 3,917 20,897 115,464
Natural gas gathering and marketing ......... 19,634 10,900 24,816 143,320
Other ....................................... 13,551 107 713 79,884
Personnel reduction program costs............ (7,128) -- -- --
Asset write-downs ........................... (7,560) 7,560 -- --
---------- ---------- ---------- ----------
13,140 22,484 46,426 338,668
---------- ---------- ---------- ----------
CORPORATE ................................... (19,552)(d) 2,946 2,268 80,611
---------- ---------- ---------- ----------
$ (56,045) $ 168,431 $ 289,402 $1,146,476
========== ========== ========== ==========
FISCAL 1998
EXPLORATION AND PRODUCTION
Operations .................................. $ 50,062 $ 91,858 $ 190,449 $ 677,712
Water well litigation provision (Note 7) .... (7,000) -- -- --
Gain from sale of
contract drilling assets ................ 2,382 -- -- --
---------- ---------- ---------- ----------
45,444 91,858 190,449 677,712
---------- ---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... 25,178 3,843 13,824 162,429
Natural gas gathering and marketing ......... 18,178 6,796 48,792 172,717
Other ....................................... 12,809 107 39 73,956
Royalty litigation provision ................ (26,000) -- --
---------- ---------- ---------- ----------
30,165 10,746 62,655 409,102
---------- ---------- ---------- ----------
CORPORATE ................................... (12,173)(d) 3,009 5,188 139,103
---------- ---------- ---------- ----------
$ 63,436 $ 105,613 $ 258,292 $1,225,917
========== ========== ========== ==========
FISCAL 1997
EXPLORATION AND PRODUCTION
Operations .................................. $ 69,314 $ 88,929 $ 134,275 $ 711,909
Water well litigation provision (Note 7) .... (10,000) -- -- --
Severance tax refunds ....................... 5,935 -- -- --
Columbia Gas contract
settlement proceeds ..................... 3,444 -- -- --
---------- ---------- ---------- ----------
68,693 88,929 134,275 711,909
---------- ---------- ---------- ----------
GAS SERVICES
Natural gas processing ...................... 65,694 3,508 7,925 129,274
Natural gas gathering and marketing ......... 23,937 3,392 24,797 159,620
Other ....................................... 10,995 107 1,511 42,931
---------- ---------- ---------- ----------
100,626 7,007 34,233 331,825
---------- ---------- ---------- ----------
CORPORATE ................................... (11,235)(d) 3,131 7,318 104,054
---------- ---------- ---------- ----------
$ 158,084 $ 99,067 $ 175,826 $1,147,788
========== ========== ========== ==========
</TABLE>
- --------------------
(a) On accrual basis, including exploratory expenditures and acquisitions.
(b) Natural gas processing $1,753; natural gas gathering and marketing $5,375.
(c) Natural gas processing $6,167; other $1,393.
(d) General corporate expenses, including personnel reduction program costs of
$8,848 in 1999.
40
<PAGE> 42
The Company's segment information conforms with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Accordingly, the
reported business segments are based on the organizational structure used by
management to assess performance and make resource allocation decisions. The
Company's three principal business segments are: exploration and production,
natural gas processing, and gas gathering and marketing. Exploration and
production segment operations include the exploration for and development and
production of natural gas and oil. Natural gas processing segment operations
include the extraction of natural gas liquids from natural gas processed at
Company- and partnership-owned processing facilities. The gas gathering and
marketing segment operates Company- and partnership-owned natural gas gathering
systems and markets natural gas through purchase and resale transactions.
All of the Company's operations are conducted in the United States. Its
revenues are derived principally from uncollateralized sales to customers in the
electrical generation, gas distribution, petrochemical and oil and gas
industries. These industry concentrations have the potential to impact the
Company's exposure to credit risk, either positively or negatively, because
customers may be similarly affected by changes in economic or other conditions.
Intersegment revenues are recorded at prevailing market prices and are
eliminated in consolidation. Gas gathering and marketing sales to a single
customer constituted approximately 13% of consolidated revenues during fiscal
1999. Sales to no single customer constituted as much as 10% of consolidated
revenues in fiscal 1998 and 1997. Segment assets exclude net assets of
discontinued real estate operations of $26,056,000 and $520,484,000 at January
31, 1998 and 1997.
The reported segment operating earnings amounts represent the operating
earnings of the Company's various industry segments before charges for
administrative, accounting, legal, information systems and other costs that are
managed on a companywide basis. In the reported total operating earnings
disclosures, all general and administrative expenses except for general
corporate expenses incurred in connection with the overall management of the
Company and the operation of the parent company have been allocated to the
industry segments based on their estimated use of these services.
Because of their magnitude and unusual nature, and in accordance with
Accounting Principles Board (APB) Opinion No. 30, the items discussed in the
following paragraphs have been reported as separate components of segment
operating earnings.
Fiscal 1999 items. Principally because of a prolonged depressed market for
energy products - particularly oil and NGLs - and forecasts that these
conditions would continue, the Company reviewed its proved oil and gas
properties for impairment at January 31, 1999. It was determined that
impairments totaling $42,250,000 were necessary to reduce the carrying values of
four fields to their estimated fair values (the present values of their
estimated future net cash flows).
During the fourth quarter of fiscal 1999, the Company implemented a
personnel reduction program which reduced its full-time employment level by 235
jobs. Aggregate pretax costs of this program - including $8,848,000 reported as
general and administrative expense - totaled $24,500,000. Of these costs,
$17,620,000 represented the present value of incremental pension and retiree
medical benefits provided under a voluntary incentive retirement program offered
to 127 employees (114 of whom accepted). Cash costs of severance and other
benefits totaled $6,880,000.
During fiscal 1999's fourth quarter, gas services asset write-downs
totaling $7,560,000 were recorded. These charges principally involved
impairments of two plants that were shut down when their gas throughput was
redirected to other plants to improve the Company's overall profitability. The
resultant reduction of future cash flows for these plants required that their
carrying values be reduced to their estimated fair values - the salvage values
of the processing equipment.
41
<PAGE> 43
Fiscal 1998 items. In July 1997, the Company recorded a $26,000,000 financial
statement provision for estimated costs to be incurred in connection with
settlements of litigation with its North Texas royalty owners. In October 1997,
a $21,000,000 payment was made to settle class-action litigation brought on
behalf of these royalty owners. Payments totaling approximately $5,000,000 were
subsequently made to royalty owners who chose not to participate in the
class-action litigation.
Effective April 1, 1997, the Company sold its remaining contract drilling
assets for $3,500,000. A gain of $2,382,000 was recorded on this transaction.
Fiscal 1997 items. During fiscal 1997, the Company recorded severance tax
refunds totaling $5,935,000. Of these amounts, $3,879,000 was related to the
retroactive designation of a portion of the Boonsville field in North Texas as a
"tight gas formation area" by the Texas Railroad Commission and $2,056,000 was
related to taxes paid on certain contract settlement proceeds, which a Texas
Comptroller's office regulation subsequently excluded from severance taxes.
During fiscal 1997, the Company received $3,444,000 as its share of
proceeds in settlement of breach of contract claims brought against Columbia Gas
Transmission Company. In conjunction with its filing for protection under the
bankruptcy laws in July 1991, Columbia unilaterally rejected its high-priced,
long-term natural gas purchase contracts, including one with the Company. During
fiscal 1997's first quarter, the Company reached an agreement with Columbia as
to the amount of the contract termination damages; after approval by the
bankruptcy court, Columbia paid such damages to the Company.
NOTE 11 - INCENTIVE COMPENSATION PLANS
In December 1997, the Board of Directors approved the Company's 1997 Performance
Unit Plan under which up to 600,000 units may be awarded to mid-level managerial
and professional employees. This plan was adopted to help the Company retain key
personnel in a very competitive employment market. At January 31, 1999,
outstanding units totaled 280,901. Some units were subsequently paid off in
connection with the recent personnel reduction program. Individuals holding
units on March 31, 1999 are to receive cash compensation equal to the closing
price of the Company's Class B stock on that day times the number of units
awarded them. Compensation expense, which is being accrued ratably over the life
of the outstanding units, totaled $2,417,000 in fiscal 1999 and $771,000 in
fiscal 1998.
As long-term incentives, the Company periodically has issued awards that it
calls "bonus units" under which employees can earn compensation based on
increases in the market price of the Company's stock. Upon the redemption of
such awards, grantees receive gross compensation in amounts equal to the excess
of the market price of the Company's common stock over a floor price (the market
price of the stock when the units were awarded). The Company's 1991 Bonus Unit
Plan authorized the issuance of up to 700,000 units, all of which had been
granted and exercised by January 31, 1999. Up to 1,500,000 units may be granted
under the 1997 Bonus Unit Plan. A total of 227,950 ten-year bonus units - which
vest in three equal annual installments - were issued in December 1997 at a
floor price of $26.125. At January 31, 1999, all such units were still
outstanding. In March 1999, a total of 249,600 similar bonus units were issued
at a floor price of $12.3125.
Compensation expense is recognized over the applicable vesting terms of the
bonus units in amounts equal to the appreciation in the market price of the
stock over the applicable floor prices. Reversals are recognized to the extent
of previously recorded appreciation in periods when the market price of the
stock declines. Expense accruals (reversals) for bonus units aggregated
$(27,000); $636,000 and $1,895,000 in fiscal 1999, 1998 and 1997.
42
<PAGE> 44
NOTE 12 - COMMON STOCK AND STOCK OPTIONS
The Company has two classes of common stock which are designated Class A and
Class B. Both classes are freely transferable and are listed on the New York
Stock Exchange; neither is convertible into the other class of common stock or
any other security of the Company at the option of the holder. The Class A
shares have full voting rights, whereas the Class B shares have no voting
rights, except as provided by law. The Company's Articles of Incorporation allow
cash dividends on Class B shares to be greater, but not less, than those paid on
Class A shares and also contain certain Class B protection provisions.
The Company's 1995 Stock Option Plan authorizes the granting of incentive and
nonqualified options to purchase Class B common stock at prices not less than
the market value on the date of grant. The options have maximum terms of 10
years and become exercisable ratably over a three-year period. Grants covering a
total of 2,500,000 Class B shares may be made under this plan. At January 31,
1999, grants covering an additional 600,308 shares could be issued under the
plan, and the weighted average remaining contractual life of stock options
outstanding under the plan was 7.6 years. During March 1999, additional options
covering 405,400 shares were granted at a price of $12.3125. Previously, the
Company had granted options under 1979 and 1989 Stock Option Plans, under which
no further grants can be made. Summarized stock option information follows:
<TABLE>
<CAPTION>
1995 Plan 1979 and 1989 Plans
----------------------------------------------- -----------------------------------------------
Options Exercisable Options Exercisable
Options Outstanding at Fiscal Year End Options Outstanding at Fiscal Year End
----------------------- -------------------- --------------------- ---------------------
Average Average Average Average
Number Price Number Price Number Price Number Price
----------- --------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At January 31, 1996 .......... 477,800 $ 17.625 -- -- 191,450 $ 18.889 95,650 $ 17.587
February 21, 1996 grants ..... 499,400 18.125 --
Exercised .................... (15,499) 17.625 (12,950) 8.750
Cancelled .................... (16,000) 17.859 --
--------- --------
At January 31, 1997 .......... 945,701 17.885 149,098 $ 17.633 178,500 19.624 118,500 19.213
February 21, 1997 grants ..... 602,490 21.750 --
December 17, 1997 grants ..... 347,050 26.125 --
Exercised .................... (143,003) 17.911 (25,830) 18.186
Cancelled .................... (7,883) 19.680 --
--------- --------
At January 31, 1998 .......... 1,744,355 20.849 369,669 18.048 152,670 19.868 92,670 19.499
Exercised .................... (135,867) 19.942 (1,000) 10.250
Cancelled .................... (3,165) 21.750 --
--------- --------
At January 31, 1999 .......... 1,605,323 20.924 908,442 19.715 151,670 19.931 151,670 19.931
========= ========
</TABLE>
Stock options are accounted for under the provisions of APB Opinion No. 25.
As a result, the Company generally does not recognize compensation expense in
its financial statements for outstanding stock options. Had grants under the
1995 Plan been accounted for on the estimated fair-value basis promulgated by
SFAS No. 123, the Company would have recorded additional compensation expense of
$3,620,000; $3,977,000 and $2,725,000 in fiscal 1999, 1998 and 1997. On a
proforma basis, earnings from continuing operations would have been reduced by
$2,353,000; $2,585,000 and $1,771,000 in fiscal 1999, 1998 and 1997, and basic
earnings per share from continuing operations for both the Class A and Class B
shares would have been lowered by 5 cents, 5 cents and 3 cents, respectively.
The additional compensation expense under the estimated fair-value basis was
computed using the Black-Scholes option-pricing model, expected lives of seven
years, annual cash dividends of 53 cents per share (the regular rate paid on the
Class B shares for the last several years) and the following interest and
volatility rates, which were determined at the dates of the individual grants:
<TABLE>
<CAPTION>
2/21/96 2/21/97 12/17/97
------- ------- --------
<S> <C> <C> <C>
Risk-free interest rate (%) ................. 5.56 6.27 5.82
Stock price volatility rate (%) ............. 26.3 28.6 28.0
Computed value per option share ............. $ 5.32 $ 7.55 $ 9.15
</TABLE>
43
<PAGE> 45
NOTE 13 - EARNINGS (LOSS) PER SHARE
The earnings (loss) per share computations included herein have been made in
accordance with Statement of Financial Accounting Standards No. 128. The Company
is required to make separate per-share computations for its Class A and Class B
common stock since the shares are not convertible into each other and different
per-share cash dividends are paid on the separate classes. In these
computations, any excess or shortfall between earnings from continuing
operations and total dividends paid is apportioned between the classes on a pro
rata basis and then added to the respective dividends paid to each class of
common stock. Accordingly, the differences in the per- share earnings amounts
for Class A and Class B shares occur because of the dividend premium on the
Class B shares. The following table sets forth basic and diluted earnings (loss)
per share information for the years ended January 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -----------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
From continuing operations ............. $ (1.11) $ (1.05) $ .71 $ .77 $ 1.64 $ 1.68
------- ------- ------- ------- ------- -------
Discontinued real estate operations
Earnings from operations ........... -- -- .14 .15 .32 .33
Loss on sale ....................... .07 .06 (1.26) (1.37) -- --
------- ------- ------- ------- ------- -------
.07 .06 (1.12) (1.22) .32 .33
------- ------- ------- ------- ------- -------
Extraordinary item ..................... -- -- (.25) (.27) -- --
------- ------- ------- ------- ------- -------
Net earnings (loss) .................... $ (1.04) $ (.99) $ (.66) $ (.72) $ 1.96 $ 2.01
======= ======= ======= ======= ======= =======
</TABLE>
The basic and diluted per share amounts were the same because the earnings
(loss) amounts for the diluted computations were no different than the ones used
in the basic computations, and - as shown in the table below - the dilutive
effect of stock options did not significantly increase the weighted average
shares outstanding. The following table reconciles the weighted average shares
outstanding used in the basic and diluted computations for the years ended
January 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------- ------- ------- -------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Used in basic computations ........... 22,321 26,785 22,714 27,989 23,092 28,786
Dilutive effect of stock options ..... -- -- 9 198 1 54
------- ------- ------- ------- ------- -------
Used in diluted computations ......... 22,321 26,785 22,723 28,187 23,093 28,840
======= ======= ======= ======= ======= =======
</TABLE>
Excluded from these computations because their effect would have been
antidilutive were stock options covering 78,258 Class A and 1,678,735 Class B
shares in 1999; 347,050 Class B shares in 1998 and 80,500 Class A and 80,500
Class B shares in 1997.
NOTE 14 - EXTRAORDINARY ITEM
During fiscal 1998, the company repurchased $185,733,000 face amount of its 9
1\4% senior notes due January 15, 2002. In connection with the repurchase, costs
of $20,385,000 were expensed, including cash costs of $19,294,000 associated
with a tender offer for these notes and the write-off of $1,091,000 in deferred
financing costs. After an income tax benefit of $7,135,000, an extraordinary
charge of $13,250,000 was recorded in connection with this extinguishment of
debt.
44
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mitchell Energy & Development Corp.:
We have audited the accompanying consolidated balance sheets of Mitchell
Energy & Development Corp. (a Texas corporation) and subsidiaries as of January
31, 1999 and 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended January 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mitchell Energy &
Development Corp. and subsidiaries as of January 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1999
45
<PAGE> 47
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL OIL AND GAS INFORMATION
Reserve quantities. Proved reserves are the estimated quantities which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under economic and operating
conditions at each year end. Proved developed reserves are expected to be
recovered from existing wells using existing equipment and operating methods.
Consolidated reserves represent the Company's net interest in oil and gas
properties or in reserves committed to Company-owned gas processing plants.
Equity partnership reserves represent the Company's proportional interest in the
reserves of partnerships that are accounted for using the equity method.
The following tables summarize changes in the Company's natural gas (gas),
crude oil and condensate (oil) and plant NGL reserve quantities during the
indicated fiscal years and the proved developed reserve quantities at the dates
indicated:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
PROVED GAS Gas Oil Gas Oil Gas Oil
AND OIL RESERVES MBOE* (Bcf) (MMBbls) MBOE* (Bcf) (MMBbls) MBOE* (Bcf) (MMBbls)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance ........ 145.3 777.5 15.7 130.1 701.2 13.3 129.4 697.2 13.2
Extensions
and discoveries ...... 21.5 121.3 1.3 32.9 177.5 3.3 17.4 91.5 2.2
Production marketed ...... (17.6) (90.4) (2.5) (16.7) (87.0) (2.2) (15.9) (83.6) (2.0)
Production consumed
in operations ........ (.6) (3.6) -- (.6) (3.6) -- (.7) (4.0) --
Purchases in place ....... 15.2 73.8 2.9 .9 1.8 .6 .9 4.8 .1
Revisions of
previous estimates ... (2.7) (11.2) (.9) (2.5) (12.3) (.5) (.4) (1.0) (.2)
Sales in place ........... (.4) (1.0) (.3) (.4) (1.5) (.2) (.8) (3.7) (.2)
Improved recovery ........ -- .1 -- 1.6 1.4 1.4 .2 -- .2
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending balance ........... 160.7 866.5 16.2 145.3 777.5 15.7 130.1 701.2 13.3
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ----------------
*Million barrels of oil equivalent using a 6-to-1 conversion factor for gas.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Equity Equity Equity
PROVED PLANT NGL Consol- Partner- Consol- Partner- Consol- Partner-
RESERVES (MMBbls) Total idated ships Total idated ships Total idated ships
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance ......... 146.5 100.5 46.0 126.4 86.3 40.1 125.8 82.4 43.4
Additions ................. 13.2 13.2 -- 18.5 18.5 -- 6.0 6.0 --
Production ................ (15.0) (10.4) (4.6) (16.5) (11.3) (5.2) (16.8) (10.9) (5.9)
Purchase of
plant interests ....... 4.2 -- 4.2 2.7 2.7 -- 2.7 3.7 (1.0)
Revisions of
previous estimates .... (9.9) (4.1) (5.8) 15.4 4.3 11.1 8.7 5.1 3.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending balance ............ 139.0 99.2 39.8 146.5 100.5 46.0 126.4 86.3 40.1
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PROVED DEVELOPED RESERVES AT FISCAL YEAR END
Gas (Bcf) ...................................... 683.6 640.0 611.0 587.6
======== ======== ======== ========
Oil (MMBbls) ................................... 15.0 14.5 12.5 11.5
======== ======== ======== ========
Plant NGLs (MMBbls)
Consolidated ............................... 76.7 86.3 78.4 72.6
Equity partnerships ........................ 33.3 44.8 39.1 41.5
-------- -------- -------- --------
110.0 131.1 117.5 114.1
======== ======== ======== ========
</TABLE>
46
<PAGE> 48
Future net cash flows from natural gas and oil reserves. The following tables
set forth estimates of the standardized measure of discounted future net cash
flows from proved gas and oil reserves at January 31, 1999, 1998 and 1997 and a
summary of the changes in those amounts for the fiscal years then ended (in
millions):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
STANDARDIZED MEASURE
Future cash inflows ................................ $ 1,760 $ 2,060 $ 3,085
Future production and development costs ............ (1,034) (923) (864)
Future income taxes ................................ (145) (331) (685)
Discount - 10% annually ............................ (190) (325) (596)
---------- ---------- ----------
$ 391 $ 481 $ 940
========== ========== ==========
CHANGES IN STANDARDIZED MEASURE
Extensions and discoveries, net of related costs ... $ 50 $ 120 $ 176
Sales, net of production costs ..................... (146) (185) (198)
Net changes in prices and production costs ......... (274) (726) 699
Accretion of discount .............................. 63 129 62
Production rate changes and other .................. 18 (7) (96)
Development costs incurred ......................... 25 13 24
Purchases in place ................................. 71 5 9
Sales in place ..................................... (2) (2) (9)
Revisions of previous quantity estimates ........... (9) (13) (3)
Net change in future income taxes .................. 114 207 (255)
---------- ---------- ----------
$ (90) $ (459) $ 409
========== ========== ==========
</TABLE>
Future net cash flows from plant NGL reserves. The following tables set forth
estimates of the standardized measure of discounted future net cash flows from
proved NGL reserves at January 31, 1999, 1998 and 1997 and a summary of the
changes in those amounts for the fiscal years then ended (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
Total idated ships Total idated ships Total idated ships
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STANDARDIZED MEASURE
Future cash inflows ........ $ 1,309 $ 956 $ 353 $ 1,782 $ 1,237 $ 545 $ 2,100 $ 1,424 $ 676
Future production costs .... (1,108) (809) (299) (1,467) (1,007) (460) (1,562) (1,058) (504)
Future income taxes ........ (59) (45) (14) (103) (73) (30) (177) (116) (61)
Discount - 10% annually .... (56) (41) (15) (88) (65) (23) (155) (103) (52)
------- ------- ------- ------- ------- ------- ------- ------- -------
$ 86 $ 61 $ 25 $ 124 $ 92 $ 32 $ 206 $ 147 $ 59
======= ======= ======= ======= ======= ======= ======= ======= =======
CHANGES IN STAND-
ARDIZED MEASURE
Additions, net of
related costs ............ $ 11 $ 11 $ -- $ 25 $ 25 $ -- $ 20 $ 20 $ --
Sales, net of
production costs ......... (9) (3) (6) (33) (20) (13) (72) (48) (24)
Net changes in
prices and costs ......... (73) (58) (15) (161) (113) (48) 67 36 31
Accretion of discount ...... 18 13 5 30 21 9 24 18 6
Purchase of
plant interests .......... 5 -- 5 1 1 -- 14 15 (1)
Revisions of previous
quantity estimates ....... (8) (4) (4) 21 9 12 6 (3) 9
Other ...................... (8) (5) (3) (4) (1) (3) 4 (3) 7
Net change in future
income taxes ............. 26 15 11 39 23 16 (22) (15) (7)
------- ------- ------- ------- ------- ------- ------- ------- -------
$ (38) $ (31) $ (7) $ (82) $ (55) $ (27) $ 41 $ 20 $ 21
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
47
<PAGE> 49
The natural gas reserve quantities reported as gas and oil reserves represent
wet gas volumes, including quantities that will be converted by processing to
NGLs. The gas and oil future net cash flows include only the leasehold
reimbursements for NGLs to be extracted during processing from the Company's gas
production; the other cash flows (amounts in excess of the leasehold
reimbursements) associated with NGLs to be extracted from the Company's wet gas
reserves are included in plant NGL amounts since those cash flows accrue to the
Company because of its ownership of gas processing plants.
The quantities reported herein for plant NGLs include all liquids that will
be extracted from gas streams contractually committed to Company-owned gas
processing plants since the Company, as plant owner, generally has beneficial
ownership of all the NGLs so produced. Accordingly, the plant NGL reserves and
future net cash flows include amounts attributable to NGLs extracted from gas
streams owned by the Company and by third parties. The Company reimburses the
owners of the natural gas streams based either on a percentage of the value of
the liquids produced or on the value of the natural gas consumed in processing.
Such reimbursements, including amounts attributable to the Company's oil and gas
leasehold interests (included in oil and gas future net cash flows), are
deducted as production costs in determining future net cash flows from plant
NGLs.
Of the total remaining natural gas reserves at January 31, 1999, an
estimated 477.3 Bcf will be processed at Company plants, including 90.0 Bcf of
fiscal 1998's natural gas reserve additions from extensions and discoveries. It
is estimated that 110.6 Bcf of such reserves and 20.6 Bcf of such reserve
additions will be converted by processing into 44.2 MMBbls and 8.3 MMBbls of
plant NGLs, respectively.
Except where otherwise specified by contractual agreement, future cash
inflows are estimated using year-end prices. Future production and development
cost estimates are based on economic conditions at the respective year ends.
Future income taxes are computed by applying applicable statutory tax rates to
the difference between the estimated future net revenues and the tax basis of
proved oil and gas properties after considering tax credit carryforwards,
estimated future percentage depletion deductions and energy tax credits.
Reserve estimates are subject to numerous uncertainties inherent in
estimating quantities of proved reserves and in the projection of future rates
of production and the timing of development expenditures. The accuracy of such
estimates is a function of the quality of available data and of engineering and
geological interpretation and judgment. Results of subsequent drilling, testing
and production may cause either upward or downward revisions of previous
estimates. Further, the volumes considered to be commercially recoverable
fluctuate with changes in prices and operating costs. Because of the
aforementioned factors, reserve estimates are generally less precise than other
financial statement disclosures.
Discounted future cash flow estimates such as those shown herein are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value also should consider probable
48
<PAGE> 50
reserves, anticipated future oil and gas prices and interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value is
necessarily subjective and imprecise.
Gas and oil related costs and operating results. The following tables set forth
capitalized costs at January 31, 1999, 1998 and 1997 and costs incurred and
operating results for oil and gas producing activities for the years then ended
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CAPITALIZED COSTS
Oil and gas properties ................................................ $ 1,863,422 $ 1,690,693 $ 1,625,903
Support equipment and facilities ...................................... 50,612 48,467 58,483
Accumulated depreciation, depletion and amortization .................. (1,213,835) (1,107,188) (1,123,909)
------------ ------------ ------------
Net capitalized costs ................................................. $ 700,199 $ 631,972 $ 560,477
============ ============ ============
COSTS INCURRED (including exploration expenses and
exploratory well impairments of $25,807; $22,376
and $18,051)
Property acquisitions
Unproved .......................................................... $ 11,908 $ 17,099 $ 5,464
Proved ............................................................ 71,662 4,666 2,343
Exploration ........................................................... 29,683 34,297 18,796
Development ........................................................... 124,574 132,167 105,008
------------ ------------ ------------
Costs incurred ........................................................ 237,827 188,229 131,611
Support equipment and facilities ...................................... 2,881 2,220 2,664
------------ ------------ ------------
Capital and exploratory expenditures .................................. $ 240,708 $ 190,449 $ 134,275
============ ============ ============
OPERATING RESULTS (before charges for
general and administrative and interest expense)
Production revenues ................................................... $ 220,416 $ 256,286 $ 264,323
Other revenues ........................................................ 1,218 3,764 2,095
------------ ------------ ------------
221,634 260,050 266,418
Less - Production costs ............................................... 74,193 70,919 65,825
Depreciation, depletion and amortization (including
proved-property impairments of $42,250; $1,640 and $3,068) ...... 143,001 91,858 88,929
Exploration expenses .............................................. 21,620 17,059 10,415
Exploratory well impairments ...................................... 4,187 5,317 7,636
Other operating costs ............................................. 11,649 12,369 12,181
------------ ------------ ------------
Segment operating earnings ............................................ (33,016) 62,528 81,432
Income taxes .......................................................... (12,438) 21,399 28,121
------------ ------------ ------------
$ (20,578) $ 41,129 $ 53,311
============ ============ ============
</TABLE>
49
<PAGE> 51
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
HISTORICAL SUMMARY
Five Years Ended January 31, 1999 (in thousands except where otherwise
indicated)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT YEAR END
Net property, plant and equipment ................ $ 1,033,738 $ 954,667 $ 775,929 $ 719,535 $ 734,099
Total assets ..................................... 1,146,476 1,251,973 1,668,272 1,599,183 1,514,277
Capital employed
Long-term debt ............................... $ 362,467(a) $ 414,267 $ 600,000(a) $ 795,000 $ 789,680
Deferred income taxes ........................ 130,069 167,903 109,459 66,696 37,243
Deferred credits and other liabilities ....... 87,371 58,128 54,539 72,832 77,799
Stockholders' equity ......................... 324,774 412,926 555,287 481,903 475,030
----------- ----------- ----------- ----------- -----------
$ 904,681 $ 1,053,224 $ 1,319,285 $ 1,416,431 $ 1,379,752
=========== =========== =========== =========== ===========
CAPITAL AND EXPLORATORY EXPENDITURES
(accrual basis)
Exploration and Production
Capital ...................................... $ 214,901 $ 168,073 $ 116,224 $ 126,915 $ 101,766
Exploratory expenses/impairments ............. 25,807 22,376 18,051 14,752 13,307
Gas services ..................................... 46,426 62,655 34,233 38,358 35,111
Corporate ........................................ 2,268 5,188 7,318 6,068 4,268
----------- ----------- ----------- ----------- -----------
$ 289,402 $ 258,292 $ 175,826 $ 186,093 $ 154,452
=========== =========== =========== =========== ===========
OPERATING STATISTICS
Average daily volumes
Natural gas sales (Mcf) ...................... 247,600 238,200 228,500 216,200 214,100
Crude oil and condensate sales (Bbls) ........ 6,800 6,200 5,500 5,400 6,300
Natural gas liquids produced (Bbls) .......... 41,100 45,300 46,100 44,500(b) 43,400(b)
Pipeline throughput (Mcf) .................... 554,000(c) 426,000 410,000 354,000 353,000(d)
Average annual sales price (dollars)
Natural gas (per Mcf) ........................ $ 2.11 $ 2.47 $ 2.64 $ 2.16 $ 2.71
Crude oil and condensate (per Bbl) ........... 12.18 18.50 21.50 16.91 15.75
Natural gas liquids produced (per Bbl) ....... 10.23 13.38 16.13 11.55 11.57
Drilling program (gross wells)
Wells drilled ................................ 165 272 209 116 132
Wells completed .............................. 144 252 185 107 121
Well count at year end (gross wells) ............. 3,308 3,273 3,090 3,047 3,280
STOCKHOLDERS' EQUITY (per share at year end) ..... $ 6.61 $ 8.42 $ 10.71 $ 9.26 $ 9.09
CASH DIVIDENDS PER SHARE
Class A (including special dividend of
24 cents in 1998) ............................. $ .48 $ .72 $ .48 $ .48 $ .48
Class B (including special dividend of
26.5 cents in 1998) ........................... .53 .795 .53 .53 .53
AVERAGE COMMON SHARES OUTSTANDING (Basic)
Class A .......................................... 22,321 22,714 23,092 23,217 23,532
Class B .......................................... 26,785 27,989 28,786 28,827 29,164
</TABLE>
- ---------------
(a) Excludes current maturities of $100,000.
(b) Excludes production of plants sold in 1996 and 1995.
(c) Includes 160,000 for North Texas gathering system acquired effective
January 1, 1998.
(d) Excluding amounts attributable to the Winnie Pipeline system which was sold
in July 1994.
50
<PAGE> 52
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
HISTORICAL SUMMARY
Five Years Ended January 31, 1999 (in thousands except per-share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Exploration and Production (including gain
of $205,256 from natural gas contract buyout in 1996) .... $ 221,634 $ 262,432 $ 269,862 $ 424,661 $ 277,099
Gas Services
Natural gas processing ................................... 253,295 329,990 376,980 283,378 252,159
Natural gas gathering and marketing ...................... 211,387 183,554 247,214 184,584 180,038
Gains from property, plant
and equipment sales ................................... -- -- -- -- 48,821
Other .................................................... 15,074 14,526 12,621 10,296 6,989
---------- ---------- ---------- ---------- ----------
Total revenues ...................................... $ 701,390 $ 790,502 $ 906,677 $ 902,919 $ 765,106
========== ========== ========== ========== ==========
SEGMENT OPERATING EARNINGS
Exploration and Production
Operations ............................................... $ 9,234 $ 62,528 $ 81,432 $ 35,775 $ 84,115
Proved property impairments .............................. (42,250) -- -- -- --
Gain from natural gas contract buyout oo ................. -- -- -- 205,256 --
Litigation (provisions) reversals ........................ 4,000 (7,000) (10,000) (15,000) --
Personnel reduction program costs ........................ (8,524) -- -- (7,935) --
Severance tax refunds .................................... -- -- 5,935 -- --
Columbia Gas contract settlement proceeds ................ -- -- 3,444 -- --
Gains from asset sales ................................... -- 2,382 -- 5,338 3,791
Gas Services
Natural gas processing ................................... (2,083) 28,330 69,110 30,994 23,253
Natural gas gathering and marketing ...................... 23,483 21,982 27,589 14,063 12,335
Other .................................................... 13,949 13,192 11,397 9,059 (846)
---------- ---------- ---------- ---------- ----------
Operations subtotal ................................. 35,349 63,504 108,096 54,116 34,742
Asset write-downs ........................................ (7,560) -- -- (52,715) (23,888)
Personnel reduction program costs ........................ (7,128) -- -- (3,600) (7,364)
Litigation provision ..................................... -- (26,000) -- -- --
Gains from major asset sales ............................. -- -- -- -- 48,821
---------- ---------- ---------- ---------- ----------
Total segment operating earnings (loss) ............. (16,879) 95,414 188,907 221,235 140,217
General and administrative expense (including
personnel reduction program costs
of $8,848 in 1999 and $4,532 in 1996) ................... 39,166 31,978 30,823 35,760 33,472
Interest expense attributable
to continuing operations ................................. 35,070 27,419 22,775 27,341 32,958
Interest income .............................................. (885) (8,899) (650) (111) (108)
Other expense ................................................ (5,637) (5,819) 2,202 2,113 3,685
---------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ........................... (84,593) 50,735 133,757 156,132 70,210
Income taxes ................................................. (31,631) 12,909 47,456 55,420 24,627
---------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ................... (52,962) 37,826 86,301 100,712 45,583
AFTER-TAX EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS (including $67,123 loss on disposal in 1998) .. 3,250 (59,683) 16,925 (63,583) 231
---------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM .................... (49,712) (21,857) 103,226 37,129 45,814
Extraordinary item (extinguishment of debt) .................. -- (13,250) -- -- --
---------- ---------- ---------- ---------- ----------
NET EARNINGS (LOSS) .......................................... $ (49,712) $ (35,107) $ 103,226 $ 37,129 $ 45,814
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE (Basic and Diluted)
Class A - From continuing operations ........................ $ (1.11) $ .71 $ 1.64 $ 1.91 $ .84
Net earnings ...................................... (1.04) (.66) 1.96 .69 .84
Class B - From continuing operations ........................ (1.05) .77 1.68 1.96 .89
Net earnings ...................................... (.99) (.72) 2.01 .74 .89
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
BOARD OF DIRECTORS
<S> <C> <C>
GEORGE P. MITCHELL SHAKER A. KHAYATT(2) M. KENT MITCHELL(1)(3)
Chairman and Chief Executive Officer, President and Chief Executive Officer, President and Chief Executive Officer,
Mitchell Energy & Development Corp. Khayatt and Company, Inc. Bald Head Island Management, Inc.
(investment banking), New York City (real estate development),
BERNARD F. CLARK Bald Head Island, North Carolina
BEN F. LOVE(2)(3)
Vice Chairman, CONSTANTINE S. NICANDROS(2)
Mitchell Energy & Development Corp. Advisory Director,
Chase Bank of Texas, N.A., and retired Chairman,
W. D. STEVENS(3) Chairman and Chief Executive Officer, CSN and Company (investments and
Texas Commerce Bancshares consulting); retired Chairman,
President and Chief Operating Officer, (now Chase Bank of Texas), Houston President and Chief Executive Officer,
President-Exploration and Production, Conoco, and Vice Chairman, DuPont,
Mitchell Energy & Development Corp. WALTER A. LUBANKO(2) Houston
ROBERT W. BALDWIN(1) Chairman and President, RAYMOND L. WATSON(1)
W. A. Lubanko & Co., Inc.
Consultant (energy/management); (investment banking), Chairman,
retired President, Gulf Refining and Brookville, New York Executive Committee of the Board of
Marketing Company (a division of Directors, The Walt Disney Company
Gulf Oil Corp.), Houston J. TODD MITCHELL(3) (entertainment), Burbank, California;
Vice Chairman, The Irvine Company
WILLIAM D. EBERLE(1)(3) President, (real estate development),
GPM, Inc. (private investments), Newport Beach, California
Chairman, The Discovery Bay Company
Manchester Associates, Ltd. (seismic software) and Dolomite
(international business consulting), Resources, Inc. (exploration and
Boston; Of Counsel on trade issues to investments), Houston
Kaye, Scholer, Fierman, Hays and
Handler (attorneys), Washington, D.C.
</TABLE>
(1) Compensation Committee
(2) Audit Committee
(3) Executive Committee
52
<PAGE> 54
[PICTURE]
LEFT TO RIGHT: PHILIP S. SMITH, ALLEN J. TARBUTTON, JR., BERNARD F. CLARK,
THOMAS P. BATTLE
<TABLE>
<CAPTION>
PRINCIPAL OFFICERS
<S> <C> <C>
GEORGE P. MITCHELL PHILIP S. SMITH THOMAS P. BATTLE
Chairman and Chief Executive Officer Corporate Senior Vice President, Corporate Senior Vice President,
Chief Financial Officer and General Counsel and Secretary
BERNARD F. CLARK President-Administration and
Vice Chairman Financial Division
W. D. STEVENS ALLEN J. TARBUTTON, JR.
President and Chief Operating Officer, Corporate Senior Vice President,
President-Exploration and Production President-Gas Services Division
Division
CORPORATE INFORMATION
STOCK LISTINGS TRANSFER AGENT AND REGISTRAR FORM 10-K
New York Stock Exchange ChaseMellon Shareholder Services, L.L.C. Copies of the Company's
Pacific Exchange 85 Challenger Road Form 10-K are available upon request to:
Ticker Symbols: MNDA (voting) Overpeck Centre Public Affairs Department
MNDB (non-voting) Ridgefield, NJ 07660-2104 Mitchell Energy & Development Corp.
Options Trading: Pacific Exchange Toll-free: (800) 635-9270 P.O. Box 4000
www.chasemellon.com The Woodlands, TX 77387-4000
Phone: (713) 377-5650
ANNUAL MEETING
10 a.m. CDT WORLDWIDE WEB
Wednesday, June 30, 1999 www.mitchellenergy.com
Mitchell Learning Center Auditorium
2002 Timberloch Place, 3rd Floor
The Woodlands, TX 77380-1148
</TABLE>
Design: John Weaver Design/Houston, Texas
Photography: Ken Childress/Houston, Texas
53
<PAGE> 1
EXHIBIT 21
Mitchell Energy & Development Corp.
SUBSIDIARIES
Listings of the Company's major subsidiaries and partnership interests at
January 31, 1999 follow. These entities, along with others which in the
aggregate are not significant, are included in the financial statements
appearing in the Company's Annual Report to Stockholders. Parent/subsidiary
relationships are indicated by indentions. Except where otherwise indicated,
each subsidiary is incorporated in Delaware and is 100% owned by its parent.
CONSOLIDATED SUBSIDIARIES
MND Energy Corporation
Mitchell Energy Corporation
Southwestern Gas Pipeline, Inc.
Acacia Natural Gas Corporation (Oklahoma)
Mitchell Gas Operating, Inc. (MGOI)
Mitchell Louisiana Gas Services, Inc. (MLGS)
MND Gas Services, LLC
Mitchell Gas Services LP (MGSLP)
MND Service, Inc.
Mitchell Receivables Corporation
Mitchell Resorts, Inc.
The Woodlands Venture Capital Company
PARTNERSHIP INTERESTS (accounted for on equity basis)
Austin Chalk Natural Gas Marketing Services (45% owned by MGSLP)
Belvieu Environmental Fuels (33.33% owned by MGSLP)
C&L Processors Partnership (50% owned by MGSLP)
Ferguson-Burleson County Gas Gathering System (45% owned by MGSLP)
Gulf Coast Fractionators (38.75% owned by MGSLP)
Louisiana Chalk Gathering System (50% owned by MLGS)
UP Bryan Plant (45% owned by MGSLP)
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this Form
10-K, into the Company's previously filed Form S-8 Registration Statement Nos.
2-86550, 33-26276, 33-31446, 333-06981 and 333-24335 and into previously filed
Form S-3 Registration Statement Nos. 33-57332 and 33-61070.
ARTHUR ANDERSEN LLP
Houston, Texas
April 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 20,300
<SECURITIES> 0
<RECEIVABLES> 40,340
<ALLOWANCES> 318
<INVENTORY> 10,734
<CURRENT-ASSETS> 79,632
<PP&E> 2,484,423
<DEPRECIATION> 1,450,685
<TOTAL-ASSETS> 1,146,476
<CURRENT-LIABILITIES> 241,795
<BONDS> 362,467
0
0
<COMMON> 5,386
<OTHER-SE> 319,388
<TOTAL-LIABILITY-AND-EQUITY> 1,146,476
<SALES> 701,390
<TOTAL-REVENUES> 701,390
<CGS> 0
<TOTAL-COSTS> 718,269
<OTHER-EXPENSES> 32,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,070
<INCOME-PRETAX> (84,593)
<INCOME-TAX> (31,631)
<INCOME-CONTINUING> (52,962)
<DISCONTINUED> 3,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,712)
<EPS-PRIMARY> (1.04)<F1>
<EPS-DILUTED> (1.04)<F2>
<FN>
<F1>
Class A Shares (1.04)
Class B Shares (.99)
<F2>
Class A Shares (1.04)
Class B Shares (.99)
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6959
------------
MITCHELL ENERGY & DEVELOPMENT CORP.
THRIFT AND SAVINGS PLAN
------------
MITCHELL ENERGY & DEVELOPMENT CORP.
(Name of issuer of securities held pursuant to the Plan)
P. O. Box 4000, The Woodlands, Texas 77387-4000
(Address of Plan and principal executive office of issuer)
The financial statements and schedules of the Mitchell Energy & Development
Corp. Thrift and Savings Plan required to be filed on Form 11-K by Section 15(d)
of the Securities Exchange Act of 1934 will be filed as an amendment to this
Form 10-K.
